FILED PURSUANT TO RULE 424(b)(1)
PROMULGATED UNDER THE SECURITIES ACT OF 1933
FILE NO. 33-57509
PROSPECTUS
7,778,701 SHARES
TYCO INTERNATIONAL LTD.
COMMON STOCK
-------------------
Of the 7,778,701 shares of Common Stock being offered, 6,226,297 shares are
being offered initially in the United States and Canada by the U.S. Underwriters
and 1,552,404 shares are being offered initially outside the United States and
Canada by the International Managers. See "Selling Shareholders" and
"Underwriting."
Of the 7,778,701 shares of Common Stock being offered, 7,586,203 shares are
being sold by certain Selling Shareholders of the Company, 147,930 shares are
being sold upon the exercise of Warrants and 44,568 shares are being sold upon
the exercise of Reallocation Rights. In connection with the Offerings, certain
Selling Shareholders will sell to the Underwriters their Warrants and
Reallocation Rights, and the Underwriters will exercise such Warrants and
Reallocation Rights in order that the underlying shares of Common Stock may be
sold in the Offerings. The Company will not receive any of the proceeds from the
sale of the shares offered hereby or from the exercise of the Reallocation
Rights, although it will receive $11.94 per share (or an aggregate of $852,397)
in connection with the exercise of A Warrants and $15.92 per share (or an
aggregate of $1,218,517) in connection with the exercise of B Warrants. See "Use
of Proceeds."
The Common Stock is traded on the New York Stock Exchange under the symbol
"TYC." On February 23, 1995, the last reported sale price of the Common Stock,
as reported on the New York Stock Exchange, was $50 5/8 per share. See "Price
Range of Common Stock and Dividends."
-------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
<TABLE><CAPTION>
PROCEEDS TO
PRICE TO UNDERWRITING SELLING
PUBLIC DISCOUNT(1) SHAREHOLDERS(2)
<S> <C> <C> <C>
Per Share........................... $50.625 $1.52 $49.105
Total(4)............................ $393,796,738 $11,823,626 $379,370,056(3)
</TABLE>
(1) The Company and the Selling Shareholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933. See "Underwriting."
(2) The Company has agreed to pay expenses related to the Offerings, estimated
at $697,855.
(3) Does not include $852,397 ($11.94 per share) to be paid to the Company by
the Underwriters upon exercise of A Warrants to be purchased by the
Underwriters from certain of the Selling Shareholders and $1,218,517 ($15.92
per share) to be paid to the Company by the Underwriters upon exercise of B
Warrants being purchased by the Underwriters from certain of the Selling
Shareholders. Also does not include $532,142 in respect of the exercise
price of the Reallocation Rights, a portion of which is payable to certain
Selling Shareholders.
(4) Certain of the Selling Shareholders have granted the U.S. Underwriters and
the International Managers options, exercisable within 30 days after the
date hereof, to purchase 609,927 and 152,065 additional shares of Common
Stock, respectively, to cover over-allotments, if any. If such options are
exercised in full, the total Price to Public, Underwriting Discount and
Proceeds to Selling Shareholders will be $432,372,583, $12,981,853 and
$416,787,674, respectively. See "Underwriting."
-------------------
The shares of Common Stock are offered by the several Underwriters, subject
to prior sale, when, as and if issued to and accepted by them, subject to
approval of certain legal matters by counsel for the Underwriters and certain
other conditions. The Underwriters reserve the right to withdraw, cancel or
modify such offer and to reject orders in whole or in part. It is expected that
delivery of the shares will be made in New York, New York, on or about March 2,
1995.
-------------------
MERRILL LYNCH & CO.
GOLDMAN, SACHS & CO.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
LEHMAN BROTHERS
-------------------
THE DATE OF THIS PROSPECTUS IS FEBRUARY 23, 1995.
<PAGE>
PHOTOS FOR INSIDE FRONT COVER TO S-3/A
UPPER LEFT HAND CORNER
FIRE PROTECTION
LOWER LEFT-HAND CORNER
ELECTRICAL AND ELECTRONIC COMPONENTS
UPPER RIGHT-HAND CORNER
FLOW CONTROL
LOWER RIGHT-HAND CORNER
DISPOSABLE AND SPECIALTY PRODUCTS
IN CONNECTION WITH THE OFFERINGS, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT
A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE OR OTHERWISE. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
2
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"), all of which may be
inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, 450 Fifth Street, N.W., Judiciary Plaza, Washington,
D.C. 20549, and at the following Regional Offices of the Commission: Chicago
Regional Office, Suite 1400, Northwestern Atrium Center, 500 West Madison
Street, Chicago, Illinois 60661; and New York Regional Office, Seven World Trade
Center, 13th Floor, New York, New York 10048. Copies of such material can be
obtained at prescribed rates from the Public Reference Section of the Commission
at 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549. Such
material can also be inspected at the offices of the New York Stock Exchange, 20
Broad Street, New York, New York 10005, where the Common Stock is listed.
This Prospectus constitutes part of a Registration Statement on Form S-3
filed by the Company with the Commission under the Securities Act, with respect
to the shares of Common Stock offered in the Offerings. This Prospectus omits
certain of the information contained in the Registration Statement in accordance
with the rules and regulations of the Commission. Reference is hereby made to
the Registration Statement and related exhibits for further information with
respect to the Company and the Common Stock. Statements contained herein
concerning the provisions of any document are not necessarily complete and, in
each instance, where a copy of such document has been filed as an exhibit to the
Registration Statement or otherwise has been filed with the Commission,
reference is made to the copy of the applicable document so filed. Each such
statement is qualified in its entirety by such reference.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following documents, which have been filed by the Company with the
Commission pursuant to the Exchange Act, are hereby incorporated by reference in
this Prospectus:
(a) The Company's Annual Report on Form 10-K for the fiscal year ended
June 30, 1994;
(b) The Company's Quarterly Reports on Form 10-Q for the quarters ended
September 30, 1994, and December 31, 1994; The Company's Quarterly Report on
Form 10-Q/A for the quarter ended December 31, 1994;
(c) The Company's Current Report on Form 8-K, dated July 26, 1994;
(d) The Company's Current Report on Form 8-K, dated August 17, 1994, and
the Company's Current Report on Form 8-K/A, dated September 19, 1994;
(e) The Company's Current Report on Form 8-K, dated October 28, 1994,
and the Company's Current Reports on Form 8-K/A, dated November 1, 1994,
November 2, 1994 and November 3, 1994; and
(f) The Company's Current Report on Form 8-K, dated January 10, 1995.
All documents filed by the Company with the Commission pursuant to Sections
13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this Prospectus
and prior to the termination of the offering of the Common Stock made hereby
shall be deemed to be incorporated by reference into this Prospectus from the
date of filing of such documents. Any statement contained in a document
incorporated or deemed to be incorporated by reference herein shall be deemed to
be modified or superseded for purposes of this Prospectus to the extent that a
statement contained herein or in any other subsequently filed document which
also is or is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any statement so modified or superseded shall not be
deemed, except as so modified or superseded, to constitute a part of this
Prospectus.
The Company will provide without charge to each person to whom a copy of
this Prospectus is delivered, including any beneficial owner of Common Stock,
upon the written or oral request of any such person, a copy of any and all of
the documents that have been or may be incorporated by reference herein other
than exhibits to such documents (unless such exhibits are specifically
incorporated by reference into such documents). Such requests should be directed
to Irving Gutin, Senior Vice President, Tyco International Ltd., One Tyco Park,
Exeter, New Hampshire 03833 (telephone: (603) 778-9700).
3
<PAGE>
PROSPECTUS SUMMARY
THE COMPANY
Tyco International Ltd. ("Tyco" or the "Company"), through its divisions and
operating subsidiaries, is the world's largest manufacturer and provider of fire
protection systems and maintains strong leadership positions in each of its
segments of its respective markets for flow control products, electrical and
electronic components and disposable medical supplies and other specialty
products. The disposable and specialty products segment includes the results of
Kendall International, Inc. ("Kendall"), which was acquired through a merger
with a wholly-owned subsidiary of Tyco on October 19, 1994 (the "Merger") that
has been accounted for using the pooling of interests method of accounting. The
Company, which operates in more than 50 countries around the world, had combined
sales of over $4 billion during its fiscal year ended June 30, 1994.
The Company's business strategy is to seek to establish and maintain a
leadership position in each of the markets it serves. The Company endeavors to
achieve this objective by attempting to be a low-cost, high-quality producer of
its products and through the acquisition of complementary product lines that can
be effectively integrated into the Company's manufacturing and distribution
operations. The goal of this strategy is to create value for the Company's
shareholders by increasing the Company's earnings per share.
The Company is a Massachusetts corporation. Its executive offices are
located at One Tyco Park, Exeter, New Hampshire 03833, and its telephone number
is (603) 778-9700.
THE OFFERINGS
The offering of 6,226,297 shares of common stock, par value $.50 per share,
of the Company (the "Common Stock") in the United States and Canada (the "U.S.
Offering") and the offering of 1,552,404 shares of Common Stock outside the
United States and Canada (the "International Offering") are collectively
referred to herein as the "Offerings." The Common Stock is being sold by certain
shareholders who received shares of the Company's Common Stock, or rights to
acquire the same, as a result of the Merger. The number of outstanding shares of
Common Stock was 75,183,309 as of February 22, 1995.
Of the 7,778,701 shares of Common Stock being offered, 7,586,203 shares are
being sold by certain Selling Shareholders (as defined herein) of the Company,
147,930 shares are being sold upon the exercise of Warrants (as defined herein)
and 44,568 shares are being sold upon the exercise of Reallocation Rights (as
defined herein). The Underwriters will exercise such Warrants and Reallocation
Rights in order that the underlying shares of Common Stock may be sold in the
Offerings. Upon exercise of such Warrants, the Underwriters will deliver to the
Company the Warrant exercise price of $11.94 per share in respect of A Warrants
to acquire 71,390 shares (or an aggregate of $852,397) and $15.92 per share in
respect of B Warrants to acquire 76,540 shares (or an aggregate of $1,218,517),
which the Company will use for working capital and general corporate purposes.
The Company will not receive any of the proceeds of the Offerings from the sale
of Common Stock or from the exercise of the Reallocation Rights. See "Use of
Proceeds", "Description of Capital Stock--Warrants", --"Reallocation Rights" and
- --"Registration Rights Agreement." In addition, holders of Common Stock (other
than Common Stock issued upon exercise of Warrants or delivered upon exercise of
Reallocation Rights subsequent to the Merger, and other than Common Stock issued
or delivered upon exercise of Warrants and Reallocation Rights to be sold to the
Underwriters) participating in the Offerings have granted options to the
Underwriters, exercisable within 30 days after the date hereof, to acquire an
aggregate of 761,992 shares of Common Stock solely to cover over-allotments, if
any. Unless otherwise indicated, all information herein assumes that the
Underwriters have not exercised their over-allotment options.
4
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
The following table sets forth summary consolidated financial data of the
Company. The summary consolidated financial data should be read in conjunction
with the audited and unaudited Consolidated Financial Statements of the Company
and the Notes thereto, appearing elsewhere in this Prospectus, and the
information contained in "Selected Consolidated Financial Data" and
"Management's Discussion and Analysis of Financial Condition and Operating
Results."
<TABLE><CAPTION>
SIX MONTHS ENDED DECEMBER 31, FISCAL YEAR ENDED JUNE 30,
----------------------------- --------------------------
1994 1993 1994 1993
----------- ------------ ---------- ----------
<S> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Sales............................. $2,151,895 $1,997,671 $4,076,383 $3,919,357
Costs and Expenses:
Cost of sales..................... 1,572,626 1,478,851 3,003,194 2,909,947
Non-recurring inventory charge.... -- -- -- 22,485(6)
Selling, general and
administrative.................. 354,111 336,163 682,568 682,520
Merger and transaction related
costs........................... 37,170(1) -- -- --
Restructuring and severance
charges......................... -- -- -- 39,325(6)
Interest.......................... 31,703 33,320 62,431 85,785
---------- ---------- ---------- ----------
1,995,610 1,848,334 3,748,193 3,740,062
---------- ---------- ---------- ----------
Income before income taxes,
extraordinary item and
cumulative effect of accounting
changes......................... 156,285 149,337 328,190 179,295
Income taxes...................... (76,276) (63,867) (138,999) (84,837)
---------- ---------- ---------- ----------
Income before extraordinary item
and cumulative effect of
accounting changes.............. 80,009 85,470 189,191 94,458
Extraordinary item, net of tax
benefit......................... (2,600)(2) -- -- (2,816)(2)
Cumulative effect of accounting
changes......................... -- -- -- (71,040)
---------- ---------- ---------- ----------
Net income........................ $ 77,409 $ 85,470 $ 189,191 $ 20,602
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Income Per Share:
Income before extraordinary item
and cumulative effect of
accounting changes.............. $ 1.07 $ 1.16 $ 2.56 $ 1.30
Extraordinary item................ (0.03) -- -- (0.04)
Cumulative effect of accounting
changes......................... -- -- -- (0.98)
---------- ---------- ---------- ----------
Net income........................ $ 1.04 $ 1.16 $ 2.56 $ 0.28
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Cash dividends per common
share(3)........................ $ 0.20 $ 0.20 $ 0.40 $ 0.38
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED DECEMBER 31, FISCAL YEAR ENDED JUNE 30,
----------------------------- --------------------------
1994 1993 1994 1993
----------- ------------ ---------- ----------
<S> <C> <C> <C> <C>
BALANCE SHEET DATA (at end of
period):
Working capital................... $ 396,874 $ 329,918 $ 341,154
Total assets...................... 3,186,469 3,140,821 3,164,966
Long-term debt.................... 563,467 588,491 812,585
Shareholders' equity.............. 1,486,833 1,367,026 1,138,786
SEGMENT DATA:
Sales:
Fire Protection................. $ 801,944 $ 763,999 $1,525,906 $1,526,079
Flow Control Products........... 480,974 431,789 914,430 806,915
Electrical and Electronic
Components.................... 205,638 214,578 436,884 413,300
Disposable and Specialty
Products...................... 663,339 587,305 1,199,163 1,173,063
---------- ---------- ---------- ----------
$2,151,895 $1,997,671 $4,076,383 $3,919,357
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Income before income taxes,
extraordinary item and
cumulative effect of accounting
changes:
Fire Protection................. $ 39,198 $ 34,269 $ 70,171 $ 43,190(6)
Flow Control Products........... 39,511 33,936 74,125 44,638(6)
Electrical and Electronic
Components.................... 36,595 36,094 72,510 68,401(6)
Disposable and Specialty
Products...................... 121,400 86,287 191,669 126,280(6)
---------- ---------- ---------- ----------
Income from operations............ 236,704 190,586 408,475 282,509
Interest expense................ (31,703) (33,320) (62,431) (85,785)
Corporate and other amounts..... (48,716)(4) (7,929) (17,854)(5) (17,429)(6)
---------- ---------- ---------- ----------
$ 156,285 $ 149,337 $ 328,190 $ 179,295
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
- ------------
(1) Results for the six months ended December 31, 1994 include a charge of $31.2
million after-tax ($0.42 per share) for fees and expenses related to the
Merger and integration of Kendall and Tyco. See Note 1 to the unaudited
Consolidated Financial Statements. Excluding the $31.2 million after-tax
charge, income before extraordinary item would have been $111.2 million, or
$1.49 per share, for the six months ended December 31, 1994.
(2) Results for the six months ended December 31, 1994 include an extraordinary
charge of $2.6 million after-tax ($0.03 per share) resulting from the early
extinguishment of $100 million of Kendall debt. See Note 3 to the unaudited
Consolidated Financial Statements. During fiscal 1993, Kendall refinanced
certain notes and borrowings outstanding under its bank facilities. In
connection with the refinancing, the Company recorded an extraordinary
charge of $2.8 million after-tax ($0.04 per share). See Note 5 to the
Consolidated Financial Statements.
(3) Cash dividends were paid by Tyco in fiscal 1993, 1994 and 1995. Kendall did
not pay dividends to its shareholders during these periods.
(4) Results for the six months ended December 31, 1994 include pre-tax charges
of $37.2 million for merger and transaction related costs. See Note 1 to the
unaudited Consolidated Financial Statements.
(5) Results for fiscal 1994 include expenses of $4.1 million related to the
accounts receivable program, which cost would have been reflected as
interest expense under previous financing arrangements. See Note 6 to the
Consolidated Financial Statements.
(6) Results for fiscal 1993 include pre-tax restructuring and severance charges
of $16.0 million, $19.0 million, $0.7 million, and $3.6 million, for Fire
Protection, Flow Control Products, Electrical and Electronic Components and
Corporate, respectively, and a non-recurring inventory charge of $22.5
million before and after-tax in the Disposable and Specialty Products
segment. Excluding the $49.8 million after-tax charges, income before
extraordinary item would have been $144.3 million, or $1.99 per share, for
fiscal 1993.
6
<PAGE>
THE COMPANY
The Company, through its divisions and operating subsidiaries, is the
world's largest manufacturer and provider of fire protection systems and
maintains strong leadership positions in each of its segments of its respective
markets for flow control products, electrical and electronic components and
disposable medical supplies and other specialty products. The disposable and
specialty products segment includes the results of Kendall, which was acquired
through the Merger that has been accounted for using the pooling of interests
method of accounting. The Company, which operates in more than 50 countries
around the world, had combined sales of over $4 billion during its fiscal year
ended June 30, 1994. See Notes to the Consolidated Financial Statements for
certain consolidated segment and geographic financial data relating to the
Company's businesses.
The Company's business strategy is to seek to establish and maintain a
leadership position in each of the markets it serves. The Company endeavors to
achieve this objective by attempting to be a low-cost, high-quality producer of
its products and through the acquisition of complementary product lines that can
be effectively integrated into the Company's manufacturing and distribution
operations. The goal of this strategy is to create value for the Company's
shareholders by increasing the Company's earnings per share.
The Company reviews acquisition opportunities in the ordinary course of
business, some of which may be material and some of which are currently under
investigation, discussion or negotiation. There can be no assurance that any of
such acquisitions will be consummated.
FIRE PROTECTION
The Company engages in fire protection contracting and in the manufacture
and distribution of fire protection products and equipment.
The Company's Grinnell subsidiary ("Grinnell"), whose business was founded
in 1850, is the largest installer, manufacturer and supplier of automatic
sprinkler and fire protection and detection systems in North America. In August
1990, the Company acquired the business and substantially all the operating
assets of Wormald International Limited ("Wormald"). Wormald, whose business was
founded in 1889, operates as a major fire protection company with contracting,
manufacturing and distribution operations throughout Western Europe and
Asia-Pacific. The combination of Grinnell and Wormald has resulted in creating
the largest fire protection company in the world, forming a network of over 200
offices on five continents.
Contracting
As the largest fire protection contractor in the world, the Company designs,
fabricates, installs and services automatic sprinkler and fire suppression
systems in buildings and other installations. Grinnell's fire protection
contracting business in North America operates through a network of offices
located in the United States, Canada, Mexico and Puerto Rico. Internationally,
the Company engages in fire protection contracting through a network of offices
in the United Kingdom, Ireland, France, Spain, Belgium, the Netherlands,
Germany, Italy, Austria, Switzerland, Denmark, Norway, Sweden, Finland, United
Arab Emirates, Saudi Arabia, Australia, New Zealand, Hong Kong, Singapore,
Taiwan, Malaysia, Thailand and Indonesia.
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 in the United States and Canada has grown as
a result of local and state legislation requiring installation of fire
protection systems and the availability of reduced insurance premiums on
structures with automatic sprinkler systems. The retrofitting and servicing of
fire
7
<PAGE>
protection systems in existing buildings represented approximately 60% of
Grinnell's North American contracting sales in each of fiscal 1994, 1993 and
1992.
A majority of the fire suppression systems installed by the Company are
water-based, but the Company is also the world's leader in providing 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 suited for 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 TM fire suppression products. INERGEN TM, an alternative to
the ozone depleting agent known as Halon, consists of a mixture of three inert
gases designed to effectively extinguish fires without polluting the environment
or damaging costly equipment.
The Company also services, maintains, repairs and inspects fire suppression
systems installed by the Company and other contractors. In Australia, New
Zealand and Asia, the Company, through its O'Donnell Griffin subsidiaries, also
engages in the installation of electrical wire and related electrical equipment
in new and existing structures and offers specialized electrical instrumentation
and mechanical contracting services in these markets including applications for
railroad and bridge construction.
Substantially all the mechanical components (and, in North America, most of
the pipe) used in the fire protection systems installed by the Company are
manufactured in the Company's own facilities. 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 also
installs alarms, detection and activation devices and centralized monitors. The
Company has developed its own computer-aided-design technology that reduces the
time required to design systems for specific applications and coordinates
fabrication and delivery of system components.
In its fire protection contracting business the Company 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 ("UAP"). During fiscal 1994, Grinnell's contracts with a number of
locals of the UAP were not renewed following lengthy negotiations. Employees in
those locations, representing 64% of those employees represented by the UAP
unions, went on strike. Grinnell has continued to operate with former union
members who have continued to work for Grinnell and with replacement workers.
The labor action has not had, and is not expected to have, any material adverse
effect on Grinnell's business or results of operations.
Generally, competition in the fire protection business varies by geographic
location. In North America, Grinnell competes with hundreds of smaller
contractors on a regional or local basis for the installation of fire
suppression and 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.
Manufacturing and Distribution
The Company manufactures most of the components used in its own fire
protection contracting business, as well as a variety of products for sale to
other fire protection contractors. In North America, the Company manufactures
pipe and pipe fittings, fire hydrants, sprinkler heads and substantially all of
the other mechanical sprinkler components used in an automatic fire suppression
system. In the United Kingdom, France, Germany and the Asia-Pacific region, the
Company manufactures and sells sprinkler heads, specialty valves, fire doors and
electronic panels for use in fire detection systems. In Mexico, the Company
manufactures fire extinguishers, fire hose and related equipment.
8
<PAGE>
At Ansul Fire Protection (Wisconsin) and Total Parsch (Mexico), the Company
manufactures and sells various lines of dry chemical, liquid and gaseous
portable fire extinguishers and related agents for industrial, government,
commercial and consumer applications. These operating units also manufacture and
sell special hazard fire suppression systems designed for use in restaurants,
earth moving equipment, marine applications, mining applications, the
petrochemical industry, confined industrial spaces and commercial spaces housing
delicate and electronic equipment. Ansul Fire Protection also manufactures spill
control products designed to absorb, neutralize and solidify spills of various
hazardous materials.
Fire protection products are sold in North America primarily through the
Company's flow control products distribution network discussed below and, to a
lesser extent, through independent distributors.
In Europe, the Company distributes fire protection products through
warehouses located in the Netherlands, the United Kingdom, Germany and France.
Products are sold principally to distributors and to fire protection contractors
and in some instances to mechanical and industrial contractors.
In Asia-Pacific, the Company distributes fire protection and flow control
products through warehouses located in Australia, New Zealand and Singapore.
Products are sold directly to fire protection and other contractors as well as
to mechanical and industrial contractors and independent distributors.
Backlog
Fire protection contracting backlog amounted to $527 million at December 31,
1994 and $439 million at June 30, 1994. The increase in backlog is due primarily
to an increase at the European and Asia-Pacific region contracting operations.
FLOW CONTROL PRODUCTS
The Company is a manufacturer and distributor of flow control products in
North America, Europe and Asia-Pacific. Flow control products include pipe,
fittings, valves, meters and related products which are used to transport,
control and measure the flow of liquids and gases. Products are manufactured at
23 plants in North America, the United Kingdom, Germany and Switzerland, and
distributed through the Company's own worldwide distribution network and through
independent distributors. The Company's Flow Control Group includes Mueller Co.
("Mueller"), Allied Tube & Conduit Corporation ("Allied") and Grinnell's flow
control operations.
Manufacturing
The Company manufactures and distributes a wide range of flow control
products, including pipe and pipe fittings, tubing, valves, meters, couplings,
pipe hangers, struts and related components. These products are used in
plumbing, heating, ventilation and air conditioning (HVAC) systems, mechanical
contracting, power generation, water and gas utilities, oil and gas exploration
and numerous other industrial applications. The Company also manufactures
certain related products such as steel tubing, custom iron castings and fencing
materials.
Allied is the leading North American manufacturer of pipe and other 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 and industrial/commercial fence market.
Mueller, a manufacturer of water and gas distribution products, manufactures
fire hydrants, valves, fittings, water meters, backflow preventers and related
products for sale to independent distributors and, to a lesser extent, directly
to waterworks contractors, municipalities and gas companies throughout the
United States and Canada.
9
<PAGE>
Tyco's Anvil Products, Inc. and Canvil Ltd. subsidiaries manufacture forged
steel fittings and valves. Its Swiss NeoTecha subsidiary manufactures Teflon
lined specialty valves for use in highly corrosive environments. Three
U.K.-based subsidiaries, Hindle Cockburns Limited, Charles Winn (Valves) Limited
and Spensall Engineering Limited, manufacture specialty high performance
butterfly valves and ball valves that are used principally in the oil and gas,
chemical and processing industries.
In May 1994, the Company acquired Preferred Pipe Products, Inc., a
U.S.-based manufacturer of pipe fitting products, primarily for the oilfield and
petrochemical markets. Also, during 1994, the Company acquired the assets of a
U.S. manufacturer of malleable iron pipe fittings.
Distribution
The Company has historically operated through a 47 branch distribution
network for the sale of flow control and fire protection products in North
America. During fiscal 1992, the Company opened a Regional Distribution Center
("RDC") in Harvey, Illinois, and in fiscal 1994 opened a second RDC in Norcross,
Georgia, each of which stocks over 8,500 products. These RDCs support the
inventory needs of the Company's branches in the central, eastern and southern
regions of North America by shipping products directly to customers. As a result
of the RDCs, warehousing and shipping requirements at the branches are reduced,
allowing management to focus on sales and customer service. During fiscal 1995,
the Company opened an additional RDC on the west coast to service and support
the remaining North American branch network. The Company also stocks and sells
products through various distribution centers in Europe, Australia, New Zealand,
the Middle East and Asia. The Company offers its products to distributors and
sprinkler contractors and, to a lesser extent, mechanical and industrial
contractors and original equipment manufacturers. While distribution patterns
vary, most centers stock an extensive line of valves, fittings, pipe and other
products for fire protection systems, components for HVAC installations and
water and gas distribution, and specialized valves and piping for the chemical,
food and beverage processing industries. Products manufactured by the Company
accounted for approximately 74% of its North American distribution sales in
fiscal 1994.
Grinnell's North American distribution network competes with other
manufacturers, independent manufacturers' representatives and, to a lesser
extent, with local and regional supply houses, all of which carry lines of other
domestic or foreign manufacturers. Grinnell competes on the basis of price, the
breadth of its product line, delivery and quality. Grinnell competes for the
sale of gray iron pipe fittings, malleable iron fittings and other flow control
products and fire protection sprinklers and devices principally with other
domestic producers. Grinnell uses an internal sales force for the sale of
certain iron castings not sold through Grinnell's distribution network.
Allied competes for the sale of steel pipe, which is sold through Grinnell's
distribution network discussed above, with pipe from other domestic and foreign
producers. Competition for the sale of pipe is based on price, service and
breadth of product line. Fence and other specialized industrial tubing is sold
to wholesalers, original equipment manufacturers and other distributors.
Competition for the sale of fence products is principally from national and
regional domestic producers and to a lesser extent from foreign companies, on
the basis of price, service and distribution. The Company competes with many
small regional manufacturers for sales of specialized industrial tubing on the
basis of price and breadth of product line.
Mueller's water and natural gas distribution flow control products are sold
through independent distributors, and directly to utilities, municipalities and
gas distribution companies. The Company competes for the sale of these products
on the basis of product quality, service, breadth of product line and conformity
with municipal codes and other engineering standards. The Company competes with
several other manufacturers in the United States and Canada for the sale of iron
and brass flow control devices for water and natural gas distribution systems.
10
<PAGE>
Backlog
Flow Control products backlog amounted to $59 million at December 31, 1994
and $58 million at June 30, 1994.
ELECTRICAL AND ELECTRONIC COMPONENTS
The Company's Electrical and Electronic Components group consists of Simplex
Technologies, Inc. ("Simplex"), the Company's Printed Circuit Group and Allied's
Electrical Conduit division. Simplex manufactures underwater communications
cable and cable assemblies. The Printed Circuit Group manufactures printed
circuit boards and assembles backplanes for the electronics industry. Allied
manufactures and distributes electrical conduit and related components used in
commercial electrical installations.
Simplex
Simplex is the largest U.S. manufacturer of undersea fiber optic
telecommunications cables. Simplex also manufactures cable and cable assemblies
for the U.S. Navy, underwater electric power cable for use by power authorities
and utilities, and electro-mechanical cable for unique field applications.
Simplex's principal customer is AT&T, which accounted for approximately 84% of
its revenues in fiscal 1994.
Under a multi-year engineering development program, Simplex and AT&T Bell
Laboratories, Inc. have developed a proprietary encapsulation process for AT&T
supplied optical fibers used in underwater telecommunications cables. Simplex
manufactures the cable and performs system assembly and has proprietary rights
to the encapsulation process. From 1986 through June 30, 1994, Simplex
manufactured approximately 85,000 kilometers of undersea optical cable deployed
by AT&T. Simplex is developing the next generation of high capacity undersea
systems for deployment in the mid to late 1990s. The next generation of undersea
systems will have enhanced operating capabilities including greater speed,
increased capacity and a new fiber design. Simplex's encapsulation and systems
assembly and testing processes are being adapted to incorporate the new
requirements.
For more than thirty years, Simplex has been the primary supplier of cable
and cable assemblies to the U.S. Navy for use in data-gathering systems. Cable
for U.S. Navy systems is manufactured under various types of contracts,
including cost-plus-incentive fee, time and material and fixed-price.
Simplex, usually in conjunction with AT&T, competes on a worldwide basis
primarily against two other entities: Alcatel-Alsthom, located in France along
with its subsidiary, Standard Telephone Co. ("STC"), located in England; and
KDD, located in Japan. Alcatel/STC is vertically integrated and produces its own
cable, whereas AT&T utilizes Simplex in the manufacture of its underwater cable
and KDD utilizes a Japanese cable manufacturer.
Simplex's backlog was approximately $375 million at December 31, 1994 and
$191 million at June 30, 1994. Simplex normally sells cable under long-term
multi-million dollar contracts, and the amount of its backlog as of any date is
affected by contract issuance for major systems and by timing of completion of
such underwater communications cable systems. During the first quarter of fiscal
1995, Simplex received a $250 million order extension on a multi-year contract.
Simplex owns a special-purpose 500,000 square foot manufacturing facility on
a deep river site in New Hampshire, with direct access to the Atlantic Ocean.
Printed Circuit Group
Tyco's Printed Circuit Group of companies (the "Group") is one of the
largest independent manufacturers of multi-layered printed circuit boards and
assemblers of backplanes 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 sides or layers that
contain
11
<PAGE>
circuitry, which could 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 which are required to accommodate powerful and sophisticated
components. Backplanes include printed circuit boards and are assemblies of
connectors and other electronic components which distribute power and
interconnect printed circuit boards, power supplies and other system elements.
The Group manufactures highly sophisticated double-sided, mass molded boards
of up to eight layers, precision tooled, custom laminated multi-layer boards of
up to 28 layers and sophisticated flex-rigid circuit boards for use in
environmentally demanding conditions. The majority of the Group's sales are
derived from its high-density multi-layer boards. The Company's backplanes
facility produces fully assembled units utilizing press-fit or soldered
connection technology, custom pin grid array sockets and surface mounted
assembly. The printed circuit boards and backplanes manufactured by the Company
are designed by customers and are manufactured on a job order basis to the
customers' specifications. Backplane sales, inclusive of board content,
accounted for 39% of the Group's sales in fiscal 1994.
The Group markets its products mainly through independent manufacturers'
representatives and, to a lesser extent, through its own internal sales
organization. The Group's customers are generally original equipment
manufacturers in the telecommunications, aircraft, computer, military and other
industrial and consumer electronics industries. The Company competes with
several large companies which manufacture less complex single-sided and
double-sided printed circuit boards in the United States, as well as with many
companies that have their own in-house manufacturing capabilities. The Company
believes that far fewer competitors manufacture the more complex, high density
double-sided and multi-layer boards. The Group competes on the basis of quality,
price, reliability and timeliness of delivery.
As a manufacturer of sophisticated products at the high technological end of
the market, the Company invests approximately $2.5 million per year in
state-of-the-art manufacturing equipment. The Group uses computer-aided-design
equipment, numerically controlled drilling machines and routers, automated gold
plating, computerized electrical testing and automated optical inspection in its
manufacturing operations.
The Group backlog amounted to $11 million at December 31, 1994 and $14
million at June 30, 1994.
Allied
Allied's Electrical Conduit division is one of the leading producers of
steel electrical conduit in the United States. Electrical conduit is galvanized
steel tubing designed to contain current-carrying electrical wires both inside
and outside buildings. Steel conduit also serves as an electrical ground which
ensures proper operation of circuit interruptors and provides a channel into
which additional wires can be inserted or removed as electrical needs change.
The division manufactures a full line of electrical conduit at plants in
Illinois and Pennsylvania. The division also manufactures steel strut channel
framing at a plant in Illinois.
The division's electrical conduit and related products are sold to wholesale
electrical distributors through the division's distribution facilities by an
internal sales force and a network of commissioned sales agents. The division
competes for the sale of electrical products primarily with several other large
domestic manufacturers. Competition in the electrical conduit industry is
primarily based upon price, quality, delivery and breadth of product line.
The division's electrical products backlog amounted to $4 million at
December 31, 1994 and $8 million at June 30, 1994.
12
<PAGE>
DISPOSABLE AND SPECIALTY PRODUCTS
Tyco's Disposable and Specialty Products Group consists of Kendall, Ludlow
Corporation ("Ludlow") and Armin Plastics ("Armin"). Kendall manufactures,
markets and distributes medical supplies and adhesive products and tapes. In
addition, Kendall markets and distributes home health care products. Ludlow is a
manufacturer of disposable medical products, laminated and coated products,
extrusion coated polyester yarns and woven fabrics, and deep-drawn metal parts.
Armin is a leading independent manufacturer of polyethylene film and packaging
products.
Kendall
Tyco acquired Kendall in October 1994. Kendall conducts its operations
through four business units: Kendall Healthcare, Kendall International
("International"), Futuro and Polyken. Kendall's products are manufactured at 23
plants in North America, the United Kingdom, Germany, Mexico, China, Thailand
and Malaysia.
In each of its business units, Kendall competes with numerous other
companies, including a number of larger well-established companies. In general,
no single company competes directly with Kendall in all of its product lines.
Kendall relies on its reputation for excellent quality and dependable service,
together with its low cost manufacturing and innovative products, to compete in
its markets.
The Kendall Healthcare business unit markets a broad range of wound care,
vascular therapy, urological care, incontinence care, anesthetic care and other
products to U.S. and Canadian hospitals and alternate site health care
customers. Kendall Healthcare leads the industry in gauze production with its
Kerlix(R) and Curity(R) brands. Kendall Healthcare's other core domestic product
category consists of its vascular therapy products, principally anti-embolism
stockings, marketed under the T.E.D.(R) brand name, sequential pneumatic
compression devices sold under the SCD TM brand name and a venous plexus foot
pump marketed under the A-V Impulse System(R) brand name. Kendall Healthcare
pioneered the pneumatic compression form of treatment and continues to be the
dominant participant in the pneumatic compression and elastic stocking segments
of the vascular therapy market.
Kendall Healthcare distributes its products both directly through its sales
force and through a network of over 250 independent distributors. Kendall
Healthcare's sales force is divided into two groups, one promoting its vascular
therapy products and the other promoting all its wound care and other products.
Most of the U.S. distributors also sell similar products made by Kendall's
competitors, a practice common in the industry.
In April 1994, Kendall acquired Superior Healthcare Group, Inc. and its
affiliates, a manufacturer of a broad line of disposable medical supplies
including respiratory, urology and nursing care products. In October 1994,
Kendall acquired Sheridan Catheter Corporation, a manufacturer of airway
management, temperature monitoring and specialty products serving patients in
anesthesia, critical care and emergency medicine.
International is responsible for the manufacturing, marketing, distribution
and export of Kendall products in numerous countries worldwide. International's
operations are organized primarily into three geographic regions--Europe, Latin
America and the Far East. International generally markets a range of products,
similar to those of Kendall Healthcare and, to a lesser extent, Futuro, although
the mix of product lines varies from country to country. International markets
to hospital and medical professionals directly and through independent
distributors.
The Futuro business unit manufactures and distributes Kendall's home health
care products to retail consumers and professional health care providers. The
unit has a broad first-aid line sold under the Curity(R) and Curad brand names,
including products such as Curad adhesive bandages, Telfa(R) pads and "kids
size" bandages with character themes utilizing, under license, Flintstones and
McDonald's trade names. Other home health care products include elastic supports
and braces, graduated compression hosiery, ambulation aids and patient aids such
as canes, crutches and bathroom safety products.
13
<PAGE>
Futuro markets its home health care products primarily through a nationwide
distributor network to more than 35,000 pharmacies and retail outlets, including
food and mass merchandisers. Futuro's direct sales force is responsible for
pharmacy sales and selected key accounts outside the retail pharmacy market. A
separate network of broker sales representatives handles all other sales.
The Polyken 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, and tapes used in the aerospace and heating and air
conditioning (HVAC) industries. Polyken also produces duct, packaging and
electrical tapes for consumer applications and bandages and medical tapes for
Kendall's healthcare product units and for third parties.
Polyken generally markets its pipeline products directly, working with local
manufacturing representatives, international engineering and construction
companies, and the owners and operators of pipeline transportation facilities.
Polyken sells its other industrial products either directly to major end users
or through diverse distribution channels, depending on the industry being
served.
Ludlow
Ludlow's Technical Products division manufactures and sells a variety of
disposable medical products, specialized paper and film products. These products
include recording chart papers for medical and industrial instrumentation,
disposable electrodes for medical devices, high quality facsimile paper,
adhesive tapes and pressure sensitive coated papers and films used for business
forms and in printing applications. These products are marketed primarily by the
division's internal sales force. The division's manufacturing plants are located
in Massachusetts, Minnesota and Washington. Competitors vary from small regional
firms to larger firms that compete with the division on a national basis.
Competition is on the basis of price and quality.
In December 1993, the Company acquired Uni-Patch, Inc. ("Uni-Patch") and
Classic Medical Products ("Classic"), both manufacturers and distributors of
medical electrodes and related products. Uni-Patch manufactures and distributes
TENS electrodes and related products which are used primarily in physical
therapy and other forms of rehabilitation medicine. Classic manufactures medical
electrodes for EKGs and similar diagnostic tests. In March 1994, Tyco purchased
the Promeon electrode gel business from Medtronics, Inc. Promeon is a leading
manufacturer of gels which are used with medical electrodes for testing and
other monitoring purposes. All of these businesses have been integrated into
Ludlow's existing facilities except for Uni-Patch, which maintains a
manufacturing facility in Minnesota.
Ludlow's Laminating and Coating division 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 that could damage the
contained products. 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
applications include packaging for photographic film, frozen foods, health care
products, electrical and metallic components, agricultural chemicals, cement and
specialty resins. The division has two manufacturing plants located in Louisiana
and Mississippi.
Ludlow markets its laminated and coated products through its internal sales
force and independent manufacturers' representatives. The Company competes with
many large and specialized manufacturers of laminated and coated products on the
basis of price, service, marketing coverage and custom application engineering.
The Twitchell division of Ludlow ("Twitchell") manufactures extrusion coated
polyester yarns and woven fabrics and woven and knit paper fabrics. These
fabrics are sold by Twitchell's internal sales force to manufacturers for use
principally in outdoor furniture, awnings, housewares and other specialty
products. Non-woven coated fabric is manufactured and sold for use as disposable
medical clothing.
14
<PAGE>
Twitchell's plant is located in Alabama. Competition with a number of U.S. and
foreign manufacturers is on the basis of price, quality and service.
Ludlow's Accurate Forming division ("Accurate") manufactures deep-drawn
metal parts, primarily barrels, caps and clips for pens and pencils and
containers, caps and closures for cosmetics, pharmaceutical packaging and
automotive applications. Accurate sells its products on a direct basis through
its internal sales force and also utilizes manufacturers' representatives. The
Company competes with many small, independent deep-drawn metal manufacturers and
plastic extruders, several of which have manufacturing locations in the Far
East. Competition is on the basis of price. Accurate's facility is in New
Jersey.
Ludlow's backlog amounted to $42 million at December 31, 1994 and $33
million at June 30, 1994.
Armin
Armin manufactures polyethylene film and packaging products in a wide range
of size, gauge, construction strength, stretch capacity, clarity and color. With
purchases of over 300 million pounds of polyethylene per year, Armin extrudes
low density and linear low density polyethylene film from resin in pellet form,
in many cases mixing in coloring, anti-slip, anti-block and other chemical
additives. Examples of Armin's product mix 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, foodhandling and pharmaceutical industries. Virtually all
sales are generated through Armin's internal sales force. Armin serves over
6,000 customers in the United States and has 11 plants in New Jersey, Oklahoma,
California, South Carolina, North Carolina and Georgia.
Armin competes with a wide range of manufacturers, including some vertically
integrated companies and companies that manufacture polyethylene resins for
their own use. Competition in many market segments is based upon, in addition to
price, product innovation, specialization and customer service. Armin's backlog
amounted to $19 million at December 31, 1994 and $20 million at June 30, 1994.
ENVIRONMENTAL MATTERS
The Company makes a substantial effort to operate its facilities in
compliance with federal, state and local laws relating to the protection of the
environment. Compliance in any fiscal year has not had and is not expected to
have a material 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 disposal of
wastes. The Company has received notification from the U.S. Environmental
Protection Agency and 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 has a number of projects underway at several of its
manufacturing facilities in order to comply with current environmental laws. In
addition, the Company remains responsible for certain environmental matters at
manufacturing locations sold by the Company. These projects, which involve both
remediation expenses and capital improvements, relate to a variety of
activities, including solvent contamination clean up, upgrading of underground
storage tanks, surface dredging, oil spill containage and clean up, containment
area upgrades, feasibility studies and equipment upgrades and replacement.
The ultimate cost of the Company's remediation projects 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 a reasonable possibility that
remedial costs
15
<PAGE>
will be incurred with respect to these projects in the aggregate range of $14.0
million to $50.5 million. At June 30, 1994 the Company had concluded that the
most probable amount which will be incurred within this range is $25.5 million
and such amount is included in the caption "accrued expenses" on the Company's
consolidated balance sheet. Based upon information available to the Company, at
those sites where there has been an allocation of the share of cleanup and such
liability could be joint and several, management believes it is probable that
other responsible parties will fully pay the cost apportioned 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 $25.5 million, the Company has concluded that its
payment of such estimated amounts will not have a material adverse effect on its
consolidated financial position or results of operations.
USE OF PROCEEDS
All of the shares of Common Stock offered hereby are being offered by
certain Selling Shareholders. See "Selling Shareholders." The Company will not
receive any of the proceeds from the sale of the shares offered hereby or from
the exercise of any Reallocation Rights. The amount payable by a holder of
Reallocation Rights upon exercise of such Reallocation Rights is payable to and
apportioned among the Kendall Investors (as defined herein) in proportion to the
number of Reallocated Shares held for their respective accounts by the
Reallocation Agent (as defined herein). The Company will receive aggregate
proceeds of $852,397 (or $11.94 per share) from the exercise of A Warrants and
$1,218,517 (or $15.92 per share) from the exercise of B Warrants, which the
Company will use for working capital and general corporate purposes.
PRICE RANGE OF COMMON STOCK AND DIVIDENDS
The Common Stock of the Company is traded on the New York Stock Exchange
under the symbol "TYC." The following table sets forth the high and low sale
prices for the Company's Common Stock, as reported on the New York Stock
Exchange, and the quarterly dividends per share declared on the Common Stock for
the periods indicated.
<TABLE><CAPTION>
COMMON STOCK
------------------------
DIVIDENDS
HIGH LOW PER SHARE
---- --- ---------
<S> <C> <C> <C>
Fiscal 1993
First Quarter......................................................... $37 1/2 $30 5/8 $ .09
Second Quarter........................................................ 43 1/8 33 1/2 .09
Third Quarter......................................................... 48 3/8 41 .10
Fourth Quarter........................................................ 45 1/8 37 3/8 .10
Fiscal 1994
First Quarter......................................................... $46 7/8 $38 3/4 $ .10
Second Quarter........................................................ 51 3/4 41 1/2 .10
Third Quarter......................................................... 55 1/4 48 7/8 .10
Fourth Quarter........................................................ 50 1/8 44 .10
Fiscal 1995
First Quarter......................................................... $48 3/8 $42 1/2 $ .10
Second Quarter........................................................ 50 1/3 43 3/8 .10
Third Quarter (through February 23, 1995)............................. 50 3/4 46 1/2 .10
</TABLE>
Cash dividends were paid by Tyco in fiscal 1993, 1994 and 1995. Kendall did
not pay dividends to its shareholders during these periods.
On February 22, 1995, the Company had approximately 6,900 Common Stock
holders of record, which does not include beneficial owners holding through
nominee or "street" name. The last reported sale price of the Common Stock on
the New York Stock Exchange on February 23, 1995 was $50.625 per share.
16
<PAGE>
CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Company as of December 31, 1994. This table should be read in conjunction with
the audited and unaudited Consolidated Financial Statements of the Company and
the Notes thereto, appearing elsewhere in this Prospectus.
<TABLE><CAPTION>
AS OF
DECEMBER 31, 1994
--------------------------------
(IN THOUSANDS EXCEPT SHARE DATA)
<S> <C>
Loans payable and current portion of long-term debt:............ $ 104,655
-----------
-----------
Long-term debt:
Credit agreements............................................. $ 0
Uncommitted lines of credit................................... 0
Insurance company notes....................................... 135,000
8.125% public notes due 1999.................................. 144,889
6.375% public debentures due 2004............................. 104,262
9.5% public debentures due 2022............................... 199,568
8.0% public debentures due 2023............................... 49,958
Other......................................................... 34,445
Less current portion...................................... (104,655)
-----------
Total long-term debt...................................... 563,467
-----------
Shareholders' equity:
Preferred stock ($1 par value, authorized 2,000,000 shares,
none outstanding)........................................... --
Common stock ($.50 par value, authorized 180,000,000 shares,
73,901,064 outstanding)..................................... 36,951
Capital in excess of par value (net of deferred compensation
of $25,367)................................................. 603,378
Currency translation adjustment............................... (23,819)
Retained earnings............................................. 870,323
-----------
Total shareholders' equity................................ 1,486,833
-----------
Total capitalization............................................ $2,050,300
-----------
-----------
</TABLE>
17
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA(A)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
The following table sets forth selected consolidated financial information
of the Company for the four years in the period ended June 30, 1994, the year
ended May 31, 1990 and the six month periods ended December 31, 1994 and 1993.
On October 19, 1994, Tyco acquired Kendall in the Merger, which has been
accounted for using the pooling of interests method of accounting. The selected
consolidated financial information reflects the combined financial position,
operating results and cash flows of Tyco and Kendall as if they had been
combined for all periods presented subsequent to June 30, 1992, the date Kendall
consummated a financial restructuring (the "Kendall Restructuring"). Financial
data for the six months ended December 31, 1994 and 1993 are unaudited but, in
the opinion of management, include all adjustments, consisting only of normal
recurring adjustments, necessary to summarize fairly the Company's financial
position and results of operations. The selected financial information should be
read in conjunction with the audited and unaudited Consolidated Financial
Statements of the Company and the Notes thereto, appearing elsewhere in this
Prospectus, and the information contained in "Management's Discussion and
Analysis of Financial Condition and Operating Results."
<TABLE><CAPTION>
SIX MONTHS ENDED FISCAL
DECEMBER 31, FISCAL YEAR ENDED JUNE 30, YEAR ENDED
------------------------ -------------------------------------------------- MAY 31,
1994(B) 1993 1994 1993(C) (D) 1992(E) 1991(F) 1990(G)
---------- ---------- ---------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Sales............................... $2,151,895 $1,997,671 $4,076,383 $ 3,919,357 $3,066,485 $3,107,891 $2,102,740
Costs and Expenses:
Cost of sales....................... 1,572,626 1,478,851 3,003,194 2,909,947 2,390,218 2,406,077 1,603,054
Non-recurring inventory charge...... -- -- -- 22,485 -- -- --
Selling, general and
administrative..................... 354,111 336,163 682,568 682,520 446,244 422,943 256,827
Merger and transaction related
costs.............................. 37,170 -- -- -- -- -- --
Restructuring and severance
charges............................ -- -- -- 39,325 25,612 -- --
Interest............................ 31,703 33,320 62,431 85,785 63,261 73,856 41,256
---------- ---------- ---------- ----------- ---------- ---------- ----------
1,995,610 1,848,334 3,748,193 3,740,062 2,925,335 2,902,876 1,901,137
---------- ---------- ---------- ----------- ---------- ---------- ----------
Income before income taxes,
extraordinary item and cumulative
effect of accounting changes....... 156,285 149,337 328,190 179,295 141,150 205,015 201,603
Income taxes........................ (76,276) (63,867) (138,999) (84,837) (45,884) (87,530) (82,484)
---------- ---------- ---------- ----------- ---------- ---------- ----------
Income before extraordinary item and
cumulative effect of accounting
changes............................ 80,009 85,470 189,191 94,458 95,266 117,485 119,119
Extraordinary item, net of tax
benefit............................ (2,600) -- -- (2,816) -- -- --
Cumulative effect of accounting
changes............................ -- -- -- (71,040) -- -- --
---------- ---------- ---------- ----------- ---------- ---------- ----------
Net income.......................... $ 77,409 $ 85,470 $ 189,191 $ 20,602 $ 95,266 $ 117,485 $ 119,119
---------- ---------- ---------- ----------- ---------- ---------- ----------
---------- ---------- ---------- ----------- ---------- ---------- ----------
Income Per Share:
Income before extraordinary item
and cumulative effect of
accounting changes............... $ 1.07 $ 1.16 $ 2.56 $ 1.30 $ 2.06 $ 2.57 $ 2.90
Extraordinary item................. (0.03) -- -- (0.04) -- -- --
Cumulative effect of accounting
changes.......................... -- -- -- (0.98) -- -- --
---------- ---------- ---------- ----------- ---------- ---------- ----------
Net Income.......................... $ 1.04 $ 1.16 $ 2.56 $ 0.28 $ 2.06 $ 2.57 $ 2.90
---------- ---------- ---------- ----------- ---------- ---------- ----------
---------- ---------- ---------- ----------- ---------- ---------- ----------
Cash dividends per common share..... $ 0.20 $ 0.20 $ 0.40 $ 0.38 $ 0.36 $ 0.35 $ 0.31
---------- ---------- ---------- ----------- ---------- ---------- ----------
---------- ---------- ---------- ----------- ---------- ---------- ----------
BALANCE SHEET DATA:
Working capital..................... $ 396,874 $ 329,918 $ 341,154 $ 274,278 $ 252,021 $ 219,773
Total assets........................ 3,186,469 3,140,821 3,164,966 2,451,537 2,392,966 1,416,556
Long-term debt...................... 563,467 588,491 812,585 534,951 609,255 269,776
Shareholders' equity................ 1,486,833 1,367,026 1,138,786 1,040,551 905,151 607,374
</TABLE>
- ------------
(a) The selected financial statement data reflect the combined results of
operations and financial position of Tyco and Kendall for all periods
subsequent to June 30, 1992. The selected financial data at and for the
years ended June 30, 1992 and 1991 and at and for the year ended May 31,
1990, reflect only the results of operations and financial position of Tyco.
See Note 1 to the Consolidated Financial Statements.
(b) Results for the six months ended December 31, 1994 include a charge of $31.2
million after-tax ($0.42 per share) for fees and expenses related to the
merger and integration of the combined companies, and an extraordinary item
of $2.6 million after-tax ($0.03 per share) resulting from the early
extinguishment of $100 million of Kendall debt. See Notes 1 and 3 to the
unaudited Consolidated Financial Statements.
(c) Effective July 1, 1992, Tyco adopted the provisions of Statement of
Financial Accounting Standards ("SFAS") 109 "Accounting for Income Taxes"
and SFAS 106 "Employers' Accounting for Post-Retirement Benefits Other Than
Pensions." Kendall adopted SFAS 109 and SFAS 106 effective with the Kendall
Restructuring (see Note 1 to the Consolidated Financial Statements) and,
accordingly, there is no cumulative effect reflected in the Consolidated
Financial Statements.
(d) Fiscal 1993 results include restructuring and severance charges of $27.3
million after-tax, a non-recurring inventory charge of $22.5 million before
and after-tax, a reduction in tax expense of $6.7 million attributable to
revisions in previous tax estimates, incremental income tax expense due to
tax rates changes of $7.8 million and a special pension charge of $1.2
million after-tax.
(e) Fiscal 1992 results include restructuring and severance charges of $14.9
million after-tax and a reduction in tax expense of $16.9 million
attributable to revisions in previous tax estimates.
(f) Fiscal 1991 results include the results of operations of Wormald from the
date of its acquisition, August 2, 1990.
(g) The Company changed its fiscal year from May 31 to June 30 effective with
the fiscal year ended June 30, 1991. Accordingly, the June 1990 results are
not presented above. The Company's results of operations for the month of
June 1990 reflected net sales of $130.2 million, net loss before income
taxes of $10.5 million, an income tax benefit of $3.5 million, net loss of
$6.9 million and net loss per share of $0.17.
18
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND OPERATING RESULTS
On October 19, 1994, a wholly-owned subsidiary of Tyco merged with Kendall.
The Merger was accounted for as a pooling of interests and the historical
results of Tyco and Kendall have been combined for all periods presented
subsequent to June 30, 1992, the effective date of the Kendall Restructuring.
Accordingly, the unaudited Consolidated Financial Statements at and for the six
months ended December 31, 1994 and 1993 and the Consolidated Financial
Statements for the years ended June 30, 1994 and 1993 reflect the combined
financial position and results of operations and cash flows of Tyco and Kendall.
The Consolidated Financial Statements for the year ended June 30, 1992 reflect
only the results of operations and cash flows of Tyco. See Note 1 to the
Consolidated Financial Statements.
Information for all periods presented below reflects the grouping of the
Company's businesses into four industry segments, consisting of Fire Protection,
Flow Control Products, Electrical and Electronic Components and Disposable and
Specialty Products. Additionally, state income tax expense, previously included
in selling, general and administrative expense, has been reclassified to the
provision for income taxes for all periods presented.
RESULTS OF OPERATIONS FOR THE FIRST SIX MONTHS OF FISCAL 1995 COMPARED WITH THE
FIRST SIX MONTHS OF FISCAL 1994
Overview
Income before extraordinary item was $80.0 million, or $1.07 per share, for
the first six months of fiscal 1995 compared with $85.5 million, or $1.16 per
share for the first six months of fiscal 1994. Excluding the $31.2 million
($0.42 per share) after-tax charge for merger and transaction related costs
related to the Merger in fiscal 1995 (see Note 1 to the unaudited Consolidated
Financial Statements), income before extraordinary item rose 30% to $111.2
million, or $1.49 per share. The increase was attributable to strong earnings in
the Disposable and Specialty Products group as well as increased income in each
of the Company's other business segments.
Sales
Sales during the first six months of fiscal 1995 were $2.15 billion, an 8%
increase over the first six months of fiscal 1994 sales of $2.0 billion. Sales
of the Fire Protection group increased $37.9 million to $801.9 million, or 5%,
due to increased sales in the North American and Asia-Pacific contracting
business partially offset by slightly lower sales in the European contracting
business. The decline in Europe was principally the result of the sale of
certain fire products businesses in the fourth quarter of fiscal 1994 partially
offset by the impact of changes in average foreign currency exchange rates on
non-U.S. dollar denominated sales in the first six months of fiscal 1995 as
compared to the first six months of fiscal 1994. Had average foreign currency
exchange rates during the first six months of fiscal 1995 remained constant with
the average during the first six months of fiscal 1994, sales would have been
approximately $24 million less in fiscal 1995. Sales of the Flow Control group
increased $49.2 million to $481.0 million, or 11%, reflecting higher volume at
Allied, Mueller and Grinnell's distribution operations. Sales of the Electrical
and Electronic Components group decreased $8.9 million to $205.6 million, or 4%,
resulting principally from lower sales of underwater communications cable
systems at Simplex. Sales of the Disposable and Specialty Products group
increased $76.0 million to $663.3 million, or 13%, due to increased sales
principally at Kendall and, to a lesser extent, at Ludlow and Armin.
Income Before Income Taxes and Extraordinary Item
For the first six months of fiscal 1995 as compared to the first six months
of fiscal 1994, operating profits of the Fire Protection group rose $4.9 million
to $39.2 million, or 14%, due principally to higher
19
<PAGE>
margins at the North American and Asia-Pacific fire protection operations
partially offset by slightly lower margins at the European contracting
operations. The operating profits of the Flow Control group increased $5.6
million to $39.5 million, or 16%, resulting principally from increased earnings
at Grinnell's North American distribution operations and at Mueller. Operating
profits of the Electrical and Electronic Components group increased $0.5 million
to $36.6 million, or 1%, due to increased earnings at Simplex somewhat offset by
decreased margins at Allied's electrical business. Operating income of the
Disposable and Specialty Products group increased $35.1 million to $121.4
million, or 41%, reflecting higher earnings at Kendall and, to a lesser extent,
at Ludlow and Armin. The impact on the consolidated results of operations from
changes in foreign exchange rates relative to the value of the U.S. dollar for
the first six months of fiscal 1995 as compared to the same period of fiscal
1994 was not material.
Interest Expense
Interest expense decreased $1.6 million to $31.7 million during the first
six months of fiscal 1995 as compared to the first six months of fiscal 1994 due
principally to the sale of $150 million of accounts receivable late in the
second quarter of fiscal 1994 (see Note 4 to the unaudited Consolidated
Financial Statements) and lower average debt balances partially offset by higher
interest rates.
Extraordinary Item
During the second quarter of fiscal 1995, the Company refinanced $100
million principal amount of Kendall's subordinated notes due 2003. In connection
with the refinancing, the Company recorded a charge of $4.3 million ($2.6
million after-tax) representing unamortized debt issuance expenses and a call
premium, as an extraordinary loss.
RESULTS OF OPERATIONS FOR THE THREE YEARS ENDED JUNE 30, 1994
Overview
Income before extraordinary item and cumulative effect of accounting changes
amounted to $189.2 million, or $2.56 per share for fiscal 1994. This compares to
$94.5 million, or $1.30 per share for fiscal 1993. Fiscal 1993 earnings reflect
restructuring and severance charges ("restructuring charges") of $39.3 million
($27.3 million after-tax), a non-recurring inventory charge of $22.5 million
before and after-tax, and a special pension charge of $2.0 million ($1.2 million
after-tax). Notes 1 and 4 to the Consolidated Financial Statements describe
these fiscal 1993 charges. Income before income taxes, extraordinary item and
cumulative effect of accounting changes was $328.2 million in fiscal 1994. This
compares to $243.1 million in fiscal 1993 (excluding the restructuring,
non-recurring inventory and special pension charges) or an increase of 35%.
These fiscal 1994 results reflect strong increases in the Disposable and
Specialty Products segment as well as increases in each of the Company's other
business segments.
Sales
Sales increased 4% during fiscal 1994 to $4.08 billion from $3.92 billion in
fiscal 1993. Sales of the Fire Protection group were approximately the same from
year to year, as increases in the Asia-Pacific and North American contracting
businesses were offset by a decrease in the European contracting business. The
lower sales in Europe reflect the result of changes in average foreign currency
exchange rates on non-U.S. dollar denominated sales in fiscal 1994 as compared
to fiscal 1993, which reduced sales in U.S. dollars for the year by
approximately $53.1 million. This reduction, due to the strengthening of the
U.S. dollar versus European currencies, primarily in the first quarter of fiscal
1994, was partially offset by increased sales in local currencies in the
European contracting businesses. Sales of the Flow Control group increased
$107.5 million to $914.4 million, or 13%, reflecting increased volume at Allied,
Mueller and Grinnell's distribution operations, as well as sales of a U.K. based
manufacturer of
20
<PAGE>
specialty high performance butterfly valves and ball valves ("Winn-Hindle")
acquired by the Company during the fourth quarter of fiscal 1993. Sales of the
Electrical and Electronic Components group increased $23.6 million to $436.9
million, or 6%, resulting principally from higher sales of electrical conduit at
Allied and higher sales of underwater communications cable systems at Simplex,
partially offset by decreased sales at the Company's printed circuit operations.
Sales of the Disposable and Specialty Products group increased $26.1 million to
$1.2 billion, or 2% due to increased sales at Armin, Kendall and Ludlow,
including the disposable medical products businesses acquired by Ludlow during
fiscal 1994.
Sales increased 28% during fiscal 1993 to $3.92 billion from $3.07 billion
in fiscal 1992 due principally to Kendall's operations, which are not included
in fiscal 1992 results (See Note 1 to the Consolidated Financial Statements).
Sales of the Fire Protection group decreased $89.6 million to $1,526.1 million,
or 6%, due to decreased sales in the European and Asia-Pacific contracting
businesses offset by a slight increase in the North American contracting
business. Sales of the Flow Control Products group increased $85.6 million to
$806.9 million, or 12%, reflecting increased volume at Allied, Grinnell's
distribution operations and Mueller. Sales of the Electrical and Electronic
Components group increased $21.0 million to $413.3 million, or 5%, resulting
principally from higher sales of underwater communications cable systems at
Simplex and higher sales of electrical conduit at Allied. Sales of the
Disposable and Specialty Products group increased $835.9 million to $1.17
billion due principally to the inclusion of Kendall's sales in 1993, as well as
increased sales at Armin and Ludlow.
Income Before Income Taxes, Extraordinary Item and Cumulative Effect of
Accounting Changes
Pre-tax income was $328.2 million in fiscal 1994 and $179.3 million in
fiscal 1993. Included in the results for fiscal 1993 are pre-tax charges for
restructuring of $39.3 million, a non-recurring inventory charge of $22.5
million and a special pension charge of $2.0 million. Excluding these charges,
pre-tax income in fiscal 1994 increased $85.1 million, or 35%. The restructuring
charges related to operational and organizational changes in certain of the
Company's businesses. See Notes 1 and 4 to the Consolidated Financial Statements
and a further description of the restructuring charges by segment below.
Management believes that the fiscal 1993 restructuring charges were sufficient
to make the required operational and organizational changes and does not
anticipate additional restructuring charges. The cash requirements for the
remaining restructuring actions are not expected to have a material effect on
the Company's fiscal 1995 cash flow as the cash needs are expected to be
partially offset by reductions in working capital.
The following is a comparison, excluding restructuring and non-recurring
inventory charges, of each of the Company's operating segments for fiscal 1994
and 1993. Operating profits of the Fire Protection group increased $11.0 million
to $70.2 million, or 19%. This was principally due to higher volume and margins
in North America. The impact on the consolidated results of operations from
changes in average foreign exchange rates for fiscal 1994 as compared to fiscal
1993 was not significant. The operating profits of the Flow Control Products
group increased $10.5 million to $74.1 million, or 16%. Improvements in margins
at Grinnell's distribution operations and earnings from Winn-Hindle were
partially offset by decreased margins at Allied's pipe operations. Operating
profits of the Electrical and Electronic Components group increased $3.4 million
to $72.5 million, or 5%, due to increased earnings reflecting higher margins at
Simplex and to a lesser extent electrical conduit at Allied, slightly offset by
a decrease in profits at the Company's printed circuit operations. Operating
profits of the Disposable and Specialty Products group increased $42.9 million
to $191.7 million, or 29%, reflecting increased earnings principally at Kendall
and, to a lesser extent, Armin and Ludlow, including the earnings of the
disposable medical products businesses acquired by Kendall and Ludlow during
fiscal 1994. Included in Corporate and other amounts for fiscal 1994 is an
expense of $4.1 million related to the Company's sale of accounts receivable.
See Note 6 to the Consolidated Financial Statements for a further description of
this transaction.
21
<PAGE>
Pre-tax income before extraordinary item and cumulative effect of accounting
changes for fiscal 1993 was $179.3 million, a 27% increase from the $141.2
million pre-tax income earned in fiscal 1992 due principally to Kendall's
operations, which are not included in fiscal 1992 results (see Note 1 to the
Consolidated Financial Statements). Included in the results for fiscal 1993 are
pre-tax charges for restructuring of $39.3 million ($27.3 million after-tax), a
non-recurring inventory charge of $22.5 million, a special pension charge of
$2.0 million ($1.2 million after-tax) and the current year effect of SFAS 106
and SFAS 109 of $0.8 million ($5.1 million after-tax). Included in fiscal 1992
results are pre-tax charges of $25.6 million ($14.9 million after-tax) for
restructuring charges. The Company's fiscal 1993 and 1992 restructuring charges
relate to operational and organizational changes in certain of the Company's
businesses. See Notes 1 and 4 to the Consolidated Financial Statements and a
further description of the restructuring charges and non-recurring inventory
charge by segment below.
The following is a comparison of each of the Company's operating segments
for fiscal 1993 and 1992. Operating profits of the Fire Protection group
decreased $42.0 million to $43.2 million, or 49%. This was due principally to
lower volume and reduced margins in the European and Australian contracting
businesses and to a lesser extent reduced margins in the North American
contracting businesses. In addition, fiscal 1993 included pre-tax restructuring
charges of $16.0 million related principally to reductions of personnel in the
European and Australian contracting businesses. In fiscal 1992, $10.0 million of
pre-tax restructuring charges were recorded. The operating profits of the Flow
Control Products group increased $6.9 million to $44.6 million, or 18%,
resulting principally from significantly increased earnings at Allied as a
result of increased margins and to a lesser extent increased earnings on the
distribution of flow control products in North America. These increases were
partly offset by decreased earnings at Mueller where unit volume was maintained
but margins suffered from competitive pricing as a result of low levels of
housing starts in the United States. In addition, fiscal 1993 included pre-tax
restructuring charges of $19.0 million related to severance and excess
facilities costs associated with a major reorganization of the distribution
system for Grinnell's North American flow control operations and the provision
for an anticipated loss on the sale of a United States pipe manufacturing
facility. In fiscal 1992, $13.4 million of pre-tax restructuring charges were
recorded. Operating profits of the Electrical and Electronic Components group
increased $14.3 million to $68.4 million, or 26%, due primarily to an increase
in earnings at Simplex reflecting higher sales of underwater communication
cables and to increased margins at the Company's printed circuit facilities
somewhat offset by a $0.7 million pre-tax restructuring charge for the shutdown
of a printed circuit board facility. Operating income of the Disposable and
Specialty Products group increased $82.8 million to $126.3 million principally
reflecting the inclusion of Kendall as of the beginning of fiscal 1993, as well
as increased volume and margins at Ludlow and Armin. Included in Corporate and
other amounts for fiscal 1993 are $5.6 million of pre-tax restructuring charges
primarily for personnel reductions and costs for certain pension items. In
fiscal 1992, a $2.2 million pre-tax restructuring charge was recorded. The
impact on the consolidated results of operations from changes in average foreign
exchange rates for fiscal 1993 as compared to fiscal 1992 was not significant.
Interest Expense
Interest expense decreased $23.4 million during fiscal 1994 due to lower
average interest rates, lower average debt levels and the sale of accounts
receivable as described in Note 6 to the Consolidated Financial Statements.
Interest expense increased $22.5 million during fiscal 1993 due to higher
average debt levels as a result of the inclusion of Kendall's debt as of July 1,
1992, and the related interest expense partially offset by lower average
interest rates.
Extraordinary Item
During fiscal 1993, Kendall refinanced certain notes and borrowings
outstanding under its bank facilities. In connection with the refinancing, the
Company recorded a charge of $4.6 million ($2.8
22
<PAGE>
million after-tax) representing unamortized bank fees and original issue
discount as an extraordinary loss.
Cumulative Effect of Accounting Changes
Effective July 1, 1992, Tyco adopted two new accounting pronouncements
related to income taxes (SFAS 109) and post-retirement health benefits (SFAS
106). The cumulative effect of these accounting changes was an after-tax charge
of $71.0 million comprised of $16.1 million for SFAS 109 and $54.9 million
($84.5 million pre-tax) for SFAS 106. In addition to the cumulative effect of
the accounting changes, SFAS 109 and SFAS 106 resulted in a fiscal year 1993
reduction in income of $5.1 million after-tax, comprised of $7.8 million of
nonrecurring tax rate changes in certain foreign jurisdictions and $1.6 million
related to additional post-retirement medical costs partially offset by $4.3
million of tax benefits. Kendall adopted SFAS 109 and SFAS 106 effective with
the Kendall Restructuring (see Note 1 to the Consolidated Financial Statements),
and accordingly there is no cumulative effect reflected in the Consolidated
Financial Statements.
Income Tax Expense
Income tax expense was $139.0 million in fiscal 1994. Income tax expense
before extraordinary item and cumulative effect of accounting changes was $84.8
million in fiscal 1993. The higher income tax expense in fiscal 1994 reflects
increased pre-tax income in fiscal 1994 and revisions of certain tax estimates
in fiscal 1993 resulting in a $6.7 million reduction in tax expense. An analysis
of income taxes and the effective income tax rate is presented in Note 8 to the
Consolidated Financial Statements.
LIQUIDITY AND CAPITAL RESOURCES
As presented in the unaudited Consolidated Statement of Cash Flows, net cash
provided by operating activities was $128.0 million during the first six months
of fiscal 1995. The significant changes in working capital accounts were a
decrease of $15.3 million in accounts receivable and contracts in process, an
increase of $24.0 million in inventory and a $25.2 million decrease in accounts
payable and accrued expenses. Net changes in other working capital accounts were
not significant during the period. Working capital requirements for the
remainder of fiscal 1995 are not expected to change significantly.
During the first six months of fiscal 1995, the Company used cash to
purchase $64.3 million of property and equipment, acquire a European fire
products company, a U.S. flow control company and three U.S. disposable health
products companies for an aggregate of $23.6 million, pay dividends of $9.3
million and reduce total debt by $84.5 million. The Company received $34.6
million of cash during the first six months of fiscal 1995 from the exercise of
stock options and warrants.
The level of capital expenditures is expected to increase slightly in fiscal
1995 as compared to fiscal 1994 and the source of funds for such expenditures is
expected to be cash from operations. The amount of total dividends paid is
expected to increase during the remainder of fiscal 1995 due to issuance of
shares of common stock in connection with the Merger with Kendall. The source of
funds for such dividends is expected to be cash from operations.
At December 31, 1994, the Company's total debt was $668.1 million as
compared to $751.7 million at June 30, 1994. In November 1994, the Company
issued $145 million principal amount of 8.125% notes due 1999. The proceeds were
used, in part, to refinance $100 million principal amount of Kendall's
subordinated notes due 2003. The balance was used to refinance, in part, $80
million of insurance company notes that were due on January 30, 1995. In October
1994, the Company replaced its credit agreements with a new credit agreement
which gives the Company the right to borrow $300 million or a portion thereof
until October 1999 (see Note 3 to the unaudited Consolidated Financial
Statements). The Company believes that its funding sources are adequate for its
anticipated requirements through expected cash flows from operations and
established financing arrangements.
23
<PAGE>
Shareholders' equity was $1,486.8 million or $20.12 per share at December
31, 1994 compared to $1,367.0 million or $19.23 per share at June 30, 1994. The
increase is due to fiscal 1995 net income and due to the exercise of stock
options and warrants. Total debt as a percent of total capitalization (total
debt and shareholders' equity) was 31% at December 31, 1994 and 35% at June 30,
1994. The change is due principally to the decrease in debt and the increase in
shareholders' equity discussed above.
BACKLOG
The backlog of unfilled orders was approximately $1,037.5 million at
December 31, 1994 and $763.0 million at June 30, 1994. This increase is
principally attributable to a $184.6 million increase at Simplex, where backlog
was increased by an order extension on a multi-year contract for the manufacture
of underwater communications cable systems. Backlog also increased in each of
the Company's other business segments, most notably in the European and
Asia-Pacific regions of the Fire Protection segment.
ACCOUNTING PRONOUNCEMENTS
In November 1992, the Financial Accounting Standards Board (the "Board")
issued Statement of Financial Accounting Standards ("SFAS") No. 112, "Employer's
Accounting for Post-Employment Benefits." The Company adopted SFAS 112 in the
first quarter of fiscal 1995. The effect of adoption of this standard did not
materially affect the Company's financial position or results of operations. In
May 1993, the Board issued SFAS 114, "Accounting by Creditors for Impairment of
a Loan." This new standard must be adopted no later than fiscal 1996. Adoption
of this standard is not expected to have a material effect on the Company's
financial position or results of operations.
24
<PAGE>
SELLING SHAREHOLDERS
The Selling Shareholders named in the table below (collectively, the
"Selling Shareholders") were former shareholders of Kendall that received shares
of Common Stock, or rights to acquire the same, as a result of the Merger. The
Selling Shareholders, as well as other persons, have certain rights and
obligations pursuant to the Registration Rights Agreement (as defined below).
See "Description of Capital Stock--Registration Rights Agreement."
The following table sets forth certain information with respect to the
Selling Shareholders and their beneficial ownership of Common Stock. Information
with respect to positions, offices or other material relationships of the
Selling Shareholders with the Company or any predecessor or affiliate thereof,
other than as a shareholder thereof, during the past three years is provided
below the table or in the notes thereto. Unless otherwise indicated, each
Selling Shareholder named has sole voting and dispositive power with respect to
its shares of Common Stock, Warrants and Reallocation Rights.
All information with respect to beneficial ownership has been furnished by
the respective Selling Shareholders (except that certain information pertaining
to the Reallocated Shares (as defined below) has been furnished by the
Reallocation Agent referred to below).
<TABLE><CAPTION>
SHARES TO BE
SHARES BENEFICIALLY BENEFICIALLY
OWNED PRIOR TO OWNED AFTER
OFFERINGS NUMBER OF OFFERINGS(2)
------------------- SHARES BEING -------------------
NUMBER PERCENT OFFERED(2) NUMBER PERCENT
--------- ------- ------------ --------- -------
<S> <C> <C> <C> <C> <C>
The Clayton & Dubilier Private Equity Fund IV
Limited Partnership ("C&D Fund IV")(1)(3)....... 4,719,710 6.3% 4,273,480 434,247 *
270 Greenwich Avenue
Greenwich, CT 06830
Clayton & Dubilier Associates III Limited
Partnership(3)(4)............................... 25,649 * 25,649 -- --
270 Greenwich Avenue
Greenwich, CT 06830
Joseph Littlejohn & Levy Fund, L.P. ("JLL
Fund")(1)(5).................................... 3,770,494 5.0% 2,549,600 262,168 *
50 Main Street, Suite 1000
White Plains, NY 10606
CBC Capital Partners, Inc....................... 231,003 * 210,003 21,000 *
270 Park Ave, 5th Floor
New York, NY 10017
The Trustees of Princeton University............ 184,803 * 168,003 16,800 *
Princeton University
P.O. Box 35
2 New South Bldg.
Princeton, NJ 08544-0035
Yale University................................. 138,600 * 126,000 12,600 *
c/o Pitt & Co./Bankers Trust
34 Exchange Place
Jersey City, NJ 07302
Toronto-Dominion Investments, Inc............... 92,400 * 84,000 8,400 *
909 Fannin
Suite 1700
Houston, TX 77010
</TABLE>
25
<PAGE>
<TABLE><CAPTION>
SHARES TO BE
SHARES BENEFICIALLY BENEFICIALLY
OWNED PRIOR TO OWNED AFTER
OFFERINGS NUMBER OF OFFERINGS(2)
------------------- SHARES BEING -------------------
NUMBER PERCENT OFFERED(2) NUMBER PERCENT
--------- ------- ------------ --------- -------
<S> <C> <C> <C> <C> <C>
Middlebury College.............................. 92,400 * 84,000 8,400 *
c/o Kane & Co./Chase Manhattan Bank
P.O.Box 1508
Church Street Station
New York, NY 10008
Norwest Equity Capital, Inc..................... 69,299 * 62,999 6,300 *
2800 Piper Jaffray Tower
Minneapolis, MN 55402
The Prudential Insurance Company of
America(6)...................................... 33,228 * 33,228 -- --
c/o Schmidt & Co.
P.O. Box 1479
Church Street Station
New York, NY 10008
McKinsey & Company Inc., Profit Sharing
Retirement Plan Trust(6)........................ 27,720 * 27,720 -- --
c/o Richard H. Moskowitz, McKinsey & Company,
Inc.
55 East 52nd Street, 23rd Floor
New York, NY 10022
Northwestern National Life Insurance Company.... 23,098 * 20,998 2,100 *
c/o Washington Square Capital
100 Washington Square, Suite 800
Minneapolis, MN 55401
Monterey Fund I(6).............................. 22,407 * 22,407 -- --
c/o Richard H. Moskowitz, McKinsey & Company,
Inc.
55 East 52nd Street, 23rd Floor
New York, NY 10022
Putnam Investments(6)........................... 20,937 * 20,937 -- --
c/o Muico & Co.
859 Willard Street
Quincy, MA 02169
Northern Life Insurance Company................. 14,783 * 13,439 1,344 *
c/o Washington Square Capital
100 Washington Square, Suite 800
Minneapolis, MN 55401
BNY Capital Corporation......................... 13,858 * 12,598 1,260 *
c/o The Bank of New York
48 Wall Street
New York, NY 10286
Neuville Company Inc............................ 10,809 * 9,826 983 *
888 Seventh Avenue, Suite 2800
New York, NY 10106
T. Rowe Price High Yield Fund, Inc. ............ 9,714 * 9,714 -- --
c/o Bowman & Co.
State Street Bank & Trust
1776 Heritage Drive
North Quincy, MA 02171
</TABLE>
26
<PAGE>
<TABLE><CAPTION>
SHARES TO BE
SHARES BENEFICIALLY BENEFICIALLY
OWNED PRIOR TO OWNED AFTER
OFFERINGS NUMBER OF OFFERINGS(2)
------------------- SHARES BEING -------------------
NUMBER PERCENT OFFERED(2) NUMBER PERCENT
--------- ------- ------------ --------- -------
<S> <C> <C> <C> <C> <C>
The North Atlantic Life Insurance Company of
America......................................... 8,868 * 8,062 806 *
c/o Washington Square Capital
100 Washington Square, Suite 800
Minneapolis, MN 55401
Bank of America of Illinois(6).................. 7,534 * 7,534 -- --
c/o Cust & Co.
231 So. LaSalle St.
Chicago, IL 60697
DL Sutton Ventures(6)........................... 3,235 * 3,235 -- --
760 Park Ave.
New York, NY 10021
Thomas Ole Dial(6).............................. 2,112 * 2,112 -- --
26 Old Huckleberry Road
Wilton, CT 06897
Federal Home Loan Bank(6)....................... 1,407 * 1,407 -- --
c/o Auer & Co./Bankers Trust Company
P.O. Box 704
Church Street Station
New York, NY 10008
Jeffrey Sussman(6).............................. 557 * 557 -- --
c/o MJ Whitman, Inc.
1999 Avenue of the Stars
Suite 3150
Los Angeles, CA 90067-6042
Jeffrey Thorp(6)................................ 557 * 557 -- --
12021 Wilshire Blvd.
No. 529
Los Angeles, CA 90025
Trubenfit(6).................................... 351 * 351 -- --
c/o Trust Company Bank
55 Park Place, 13th floor
Atlanta, GA 30303
Mildred M. Rohr(6).............................. 144 * 144 -- --
c/o Mildred M. Rohr Trust
385 W. Onwentsia Rd.
Lake Forest, IL 60045
Penn Series High Yield Bond Fund(6)............. 141 * 141 -- --
c/o Richter & Co.
100 East Pratt Street, 7th Fl.
Baltimore, MD 21202
--------- ------- ------------ --------- -------
TOTAL........................................... 9,525,818 12.7% 7,778,701 776,408 1.0%
</TABLE>
- ------------
* Less than 1%
(Footnotes on following page)
27
<PAGE>
- ------------
(1) Pursuant to an Equity Reallocation Agreement, dated as of July 7, 1992 (the
"Reallocation Agreement"), among C&D Fund IV, JLL Fund, FIMA Finance
Management Inc. ("FIMA"), Mutual Series Fund Inc. ("Mutual Fund"), Leeway
and Co., Richard A. Gilleland and his daughter (collectively, the "Kendall
Investors"), Kendall and Mellon Bank, N.A., as successor reallocation agent,
the Kendall Investors delivered certain shares of Common Stock (the
"Reallocated Shares") to the reallocation agent in exchange for certificates
evidencing a residual interest in such shares. Pursuant to the Reallocation
Agreement, the holders of Kendall's equity securities outstanding
immediately prior to July 7, 1992 received, in partial exchange for such old
equity securities, rights to purchase (the "Reallocation Rights") the
Reallocated Shares. Until such time as the Reallocated Shares are delivered
upon exercise of the Reallocation Rights, the Kendall Investors have the
right to vote the Reallocated Shares in which they have a residual interest.
Shares beneficially owned by C&D Fund IV prior to the Offerings consist of
4,654,000 shares of Common Stock directly owned by C&D Fund IV, 46,519 shares
of Common Stock that it has the right to acquire upon the exercise of
Warrants and Reallocation Rights (including 3,698 Reallocated Shares in
which it has a residual interest and which it would acquire upon the exercise
of its Reallocation Rights) and 19,191 Reallocated Shares over which it had
voting power but not dispositive power as of February 21, 1995 (as to all of
which beneficial ownership has been disclaimed by certain persons (see Note
3)). In connection with the Offerings, C&D Fund IV has agreed to sell to the
Underwriters 4,226,961 shares of Common Stock it owns directly and Warrants
and Reallocation Rights to acquire 46,519 shares of Common Stock, which
Warrants and Reallocation Rights will be exercised by the Underwriters so
that the underlying shares of Common Stock may be sold in the Offerings. In
addition, the holders of Reallocation Rights relating to 11,983 Reallocated
Shares (over which C&D Fund IV had voting power but not dispositive power as
of February 21, 1995) have agreed to sell such Reallocation Rights to the
Underwriters, which Reallocation Rights will be exercised by the Underwriters
so that the underlying shares of Common Stock may be sold in the Offerings.
Accordingly, C&D Fund IV would not beneficially own any shares of Common
Stock after consummation of the Offerings, other than the 427,039 shares of
Common Stock subject to the over-allotment options it granted to the
Underwriters and up to 7,208 Reallocated Shares over which it has voting
power but not dispositive power and for which the holders of Reallocation
Rights relating thereto have elected not to participate in the Offerings.
Shares beneficially owned by JLL Fund prior to the Offerings consist of
3,747,605 shares of Common Stock directly owned by JLL Fund and 22,889
Reallocated Shares over which it had voting power but not dispositive power
as of February 21, 1995 (as to all of which beneficial ownership has been
disclaimed by certain persons (see Note 5)). In the Offerings, JLL Fund has
agreed to sell 2,549,600 of the shares of Common Stock it owns directly. JLL
Fund will distribute approximately 943,045 shares of Common Stock it owns
directly to its general and limited partners prior to the completion of the
Offerings, which shares will not be sold in the Offerings. In addition, the
holders of Reallocation Rights relating to 15,681 Reallocated Shares over
which JLL Fund had voting power but not dispositive power as of February 21,
1995 have agreed to sell such Reallocation Rights to the Underwriters so that
the underlying shares of Common Stock may be sold in the Offerings.
Accordingly, JLL Fund would not beneficially own any shares of Common Stock
after consummation of the Offerings other than the 254,960 shares of Common
Stock subject to the over-allotment option it granted to the Underwriters and
up to 7,208 Reallocated Shares over which it has voting power but not
dispositive power and for which the holders of Reallocation Rights relating
thereto have elected not to participate in the Offerings.
(2) Assumes the Underwriters' over-allotment options are not exercised. See
"Underwriting." Holders of Common Stock (other than Common Stock issued upon
exercise of Warrants or delivered upon exercise of Reallocation Rights
subsequent to the Merger and other than Common Stock issuable or deliverable
upon exercise of Warrants and Reallocation Rights to be sold to the
Underwriters) participating in the Offerings have granted the Underwriters
options, exercisable within 30 days after the date hereof, to purchase up to
an aggregate of 761,992 additional shares of Common Stock solely to cover
over-allotments, if any.
(3) C&D Fund IV is an investment partnership, the general partner of which is
Clayton & Dubilier Associates IV Limited Partnership ("Associates IV"). The
general partners of Associates IV are Charles B. Ames, William A. Barbe,
Alberto Cribiore, Donald J. Gogel, Leon J. Hendrix, Jr.,
(Footnotes continued on following page)
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<PAGE>
- ------------
Hubbard C. Howe, Andrall E. Pearson and Joseph L. Rice, III. Messrs.
Cribiore and Rice are also general partners of Clayton & Dubilier Associates
III Limited Partnership ("Associates III"). As such, Messrs. Ames, Barbe,
Cribiore, Gogel, Hendrix, Howe, Pearson and Rice share investment and voting
power with respect to the securities of Tyco that C&D Fund IV owns, and
Messrs. Cribiore and Rice share investment and voting power with respect to
securities of Tyco that Associates III owns. Messrs. Ames, Barbe, Cribiore,
Gogel, Hendrix, Howe, Pearson and Rice have disclaimed beneficial ownership
of such securities. Messrs. Cribiore and Pearson were directors of Kendall
prior to the Merger, and Mr. Cribiore was elected a director of Tyco
following the Merger.
(4) Associates III has the right to acquire 25,649 shares of Common Stock upon
the exercise of Warrants and Reallocation Rights to be sold to the
Underwriters (as to all of which beneficial ownership has been disclaimed by
certain persons (see Note 3)).
(5) Peter A. Joseph, Angus C. Littlejohn, Paul S. Levy and Yvonne V. Cliff are
the general partners of JLL Associates, L.P., the general partner of JLL
Fund, and as such, they share investment and voting power with respect to
the shares of Tyco Common Stock that JLL Fund owns. Messrs. Joseph,
Littlejohn and Levy and Ms. Cliff have disclaimed beneficial ownership of
such shares. Mr. Levy was a director of Kendall prior to the Merger and was
elected a director of Tyco following the Merger. Mr. Levy is expected to
receive approximately 183,034 shares of Tyco Common Stock through the
distribution of shares by JLL Fund to its general and limited partners prior
to the completion of the Offerings, which shares will not be sold in the
Offerings.
(6) Represents shares of Common Stock issuable or deliverable upon the exercise
of Warrants and Reallocation Rights beneficially owned by such person. In
connection with the Offerings, such Selling Securityholder has agreed to
sell to the Underwriters its Warrants and Reallocation Rights, which
Warrants and Reallocation Rights will be exercised by the Underwriters so
that the underlying shares of Common Stock may be sold in the Offerings.
BOARD MEMBERSHIP
Pursuant to the terms of the merger agreement between Tyco and Kendall
relating to the Merger, the Board of Directors of Tyco has elected Alberto
Cribiore and Paul S. Levy to serve as directors of Tyco.
Tyco has agreed that for so long as C&D Fund IV continues to hold at least
20% of the shares of Common Stock received by it in the Merger, Tyco will
include one person designated in writing by C&D Fund IV and reasonably
satisfactory to Tyco in the slate of nominees recommended by the Board of
Directors of Tyco to its shareholders for election at each annual meeting of
shareholders of Tyco and use its reasonable best efforts to cause such designee
to be elected as a director of Tyco. Tyco has also agreed that for so long as
the JLL Fund continues to hold at least 20% of the shares of Common Stock
received by it in the Merger, Tyco will include one person designated in writing
by JLL Fund and reasonably satisfactory to Tyco in the slate of nominees
recommended by the Board of Directors of Tyco to its shareholders for election
at each annual meeting of shareholders of Tyco and use its reasonable best
efforts to cause such designee to be elected as a director of Tyco. At such time
as C&D Fund IV or JLL Fund, as the case may be (together with certain other
persons), ceases to own at least 20% of the shares of Common Stock received by
it in the Merger, upon request of Tyco, C&D Fund IV or JLL Fund, as the case may
be, will request, and use all reasonable means at its disposal to cause, its
designee to tender such designee's resignation as a director of Tyco. Upon
consummation of the Offerings, neither C&D Fund IV nor JLL Fund (together with
the aforementioned persons) will own more than 20% of the shares of Common Stock
received by it in the Merger.
29
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The following description does not purport to be complete and is qualified
in its entirety by the applicable provisions of the Company's Restated Articles
of Organization and By-Laws, copies of which are filed as exhibits to the
Registration Statement.
The authorized capital stock of the Company consists of 2,000,000 shares of
preferred stock, par value $1 per share (the "Preferred Stock"), of which no
shares were outstanding at February 22, 1995, and 180,000,000 shares of Common
Stock, of which 75,183,309 shares were issued and outstanding at February 22,
1995. The Preferred Stock is divisible into and issuable in one or more series.
Different series may be established, and the variations in the relative rights
and preferences as between such series may be fixed, by the Board of Directors
of the Company.
Mellon Bank, N.A. is the registrar and transfer agent of the shares of
Common Stock.
The holders of Common Stock are entitled to receive dividends when and as
declared by the Company's Board of Directors but only out of funds legally
available for the payment thereof, subject to restrictions imposed by certain
indebtedness of the Company. No cash payment or distribution may be made to
holders of Common Stock until all accrued dividends on all series of Preferred
Stock, if any, have been declared and set apart for payment through the last
preceding dividend date set for all such securities.
Holders of Common Stock are entitled to one vote per share at any annual or
special meeting of shareholders. Holders of Preferred Stock, if any, are
entitled to the voting rights fixed by the Board of Directors of the Company for
their respective series. Voting rights are not cumulative, and therefore holders
of more than 50% of the voting power of the Company could, if they chose to do
so, elect all directors, in which case holders of the remaining voting power
would be unable to elect any director.
Article I, Section 6 of the Company's By-Laws provides that any person (a
"Related Person") who together with its Affiliates and Associates (each as
defined in the Company's By-Laws) owns 5% or more of the outstanding shares of
Voting Stock (defined in the Company's By-Laws to include all outstanding shares
of capital stock of the Company entitled to vote in the election of directors
upon the occurrence of a specified event or condition) of the Company, and any
Affiliate or Associate of such person (other than the Company and its
Subsidiaries (as defined in the Company's By-Laws)), must comply with certain
minimum price and procedural requirements or, in the alternative, obtain the
advance approval of a majority of the Company's Continuing Directors (as defined
in the Company's By-Laws) or holders of not less than 80% of the Company's
Voting Stock in order to effect a merger or other Business Combination involving
the Company. The various transactions in the definition of "Business
Combination" include: any merger or consolidation of the Company or a Subsidiary
with or into a Related Person; any sale, lease, exchange, transfer, or other
disposition, in one transaction or a series of transactions, (i) to a Related
Person or an Affiliate or Associate of a Related Person of any Substantial Part
(as defined in the Company's By-Laws) of the assets of the Company or a
Subsidiary or (ii) from a Related Person or an Affiliate or Associate of a
Related Person, in an amount that would constitute a Substantial Part of the
assets of the Company; any issuance or sale by the Company or a Subsidiary of
any of its securities to a Related Person or an Affiliate or Associate of a
Related Person other than pursuant to an employee plan approved by a majority of
the Continuing Directors and the shareholders of the Company; any acquisition by
the Company or a Subsidiary of any securities of a Related Person or Affiliate
or Associate of a Related Person; any adoption of any plan for the liquidation
or dissolution of the Company proposed by or on behalf of a Related Person or
any Affiliate or Associate of a Related Person; and any reclassification of
securities, recapitalization of the Company or any other transaction that has
the effect of increasing the proportion of the outstanding shares of any class
of the Company's or any Subsidiary's equity securities owned by a Related Person
or any Affiliate or Associate of a Related Person. The By-Laws of the Company
confer upon a majority of the Continuing Directors the authority to determine,
among other things, whether a person is a Related
30
<PAGE>
Person and whether any proposed Business Combination complies with the minimum
price and procedural requirements. This section of the By-Laws cannot be
repealed or amended, nor may an inconsistent provision be adopted, without the
affirmative vote of a majority of the Continuing Directors or holders of not
less than 80% of the outstanding shares of the Voting Stock of the Company.
Upon the dissolution of the Company or upon any distribution of the
Company's assets, holders of Common Stock are entitled to all of the Company's
assets available for distribution to shareholders after the holders of all
series of Preferred Stock, if any, have received the preference fixed by the
Board of Directors for their respective series. Holders of Common Stock do not
have any preemptive rights to subscribe for additional issues of capital stock,
and they are not liable to further calls or to assessment by the Company.
WARRANTS
The Warrants (the "Warrants") were issued pursuant to two Warrant
Agreements, each dated as of July 7, 1992 (the "Warrant Agreements"), between
Kendall and Norwest Bank Minnesota, N.A., as warrant agent (the "Warrant
Agent"). Upon consummation of the Merger, each Warrant became exercisable for
1.29485 shares of the Common Stock, the Company assumed the obligations of
Kendall under the Warrant Agreements, and Mellon Bank, N.A., the registrar and
transfer agent for the Common Stock, became the successor Warrant Agent. The
following summary of certain provisions of the Warrants does not purport to be
complete and is subject in all respects to the provisions of the Warrant
Agreements, copies of which are filed as exhibits to the Registration Statement,
to which reference is hereby made for a complete statement of such provisions.
The Warrants were issued on July 7, 1992, in connection with the
restructuring of Kendall under Chapter 11 of the United States Bankruptcy Code
(the "Kendall Restructuring") to holders of equity securities of Kendall
outstanding prior to consummation of the Kendall Restructuring. As a result of
the Merger, A Warrants entitle the holders thereof to purchase Common Stock at
an exercise price of $11.94 per share, and B Warrants entitle the holders
thereof to purchase Common Stock at an exercise price of $15.92 per share. As of
the date of the Merger, and excluding Warrants held by Associates III and C&D
Fund IV, there remained outstanding A Warrants to purchase 87,845 shares of
Common Stock and B Warrants to purchase 111,756 shares of Common Stock. The
applicable exercise price and the number of shares issuable upon exercise of the
Warrants are subject to adjustment in certain circumstances. Holders of the
Warrants are not entitled to any rights as shareholders of Tyco until such
holders properly exercise the Warrants and acquire shares of Common Stock.
The holders of Warrants exercisable for an aggregate of 147,930 shares of
Common Stock (including certain holders who exercised their Warrants subsequent
to the Merger) have elected to participate in the Offerings. The holders of
additional Warrants exercisable for an aggregate of up to approximately 65,299
shares of Common Stock have elected not to participate in the Offerings and will
retain certain piggyback registration rights following the Offerings. See
"Selling Shareholders" and "Description of Capital Stock--Registration Rights
Agreement."
REALLOCATION RIGHTS
In connection with the Kendall Restructuring, pursuant to the Reallocation
Agreement among the Kendall Investors, Kendall and Mellon Bank, N.A., as
successor reallocation agent (the "Reallocation Agent"), the Kendall Investors
delivered the Reallocated Shares to the reallocation agent in exchange for
certificates evidencing a residual interest in such shares and the holders of
Kendall's equity securities outstanding prior to the Kendall Restructuring
received rights to purchase (the "Reallocation Rights") the Reallocated Shares
at any time on or prior to July 7, 1999. The Reallocation Rights are
transferable. The amount payable by a holder of Reallocation Rights upon
exercise of such Reallocation Rights is payable to and apportioned among the
Kendall Investors in proportion to the number of Reallocated Shares held for
their respective accounts by the reallocation agent. Until the Reallocation
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<PAGE>
Rights are exercised, the voting rights and the right to receive dividends with
respect to the Reallocated Shares remain with the Kendall Investors. The
foregoing summary of the Reallocation Rights does not purport to be complete and
is subject in all respects to the provisions of the Reallocation Agreement, a
copy of which is filed as an exhibit to the Registration Statement, to which
reference is hereby made for a complete statement of such provisions.
Upon consummation of the Merger, each Reallocated Share held by the
Reallocation Agent at the time of the Merger was converted into 1.29485 shares
of Common Stock, and Mellon Bank, N.A. became successor reallocation agent under
the Reallocation Agreement. Following the Merger, the Reallocation Rights
entitle the holders thereof to purchase Common Stock at an exercise price of
$11.94 per share.
The holders of Reallocation Rights exercisable for an aggregate of 44,568
shares of Common Stock have elected to participate in the Offerings. The holders
of additional Reallocation Rights exercisable for an aggregate of up to
approximately 20,435 shares of Common Stock have elected not to participate in
the Offerings and will retain certain piggyback registration rights following
the Offerings. See "Selling Shareholders" and "Description of Capital
Stock--Registration Rights Agreement."
REGISTRATION RIGHTS AGREEMENT
Tyco has agreed generally to assume and perform the obligations of Kendall
under the Registration Rights Agreement, dated as of July 7, 1992, as amended
(the "Registration Rights Agreement"), among Kendall and certain former
securityholders of Kendall, including C&D Fund IV, JLL Fund, Mutual Fund, FIMA
(each, an "Institutional Investor"), Mr. Gilleland and his daughter, and certain
permitted transferees (collectively, together with certain other former
securityholders of Kendall entitled to the benefits, and bound by the terms, of
the Registration Rights Agreement, the "Holders"). The following summary of
certain terms of the Registration Rights Agreement does not purport to be
complete and is subject in all respects to the provisions of the Registration
Rights Agreement, a copy of which is filed as an exhibit to the Registration
Statement, to which reference is hereby made for a complete statement of such
provisions.
Demand Registration. The Registration Rights Agreement gives the right to
each Institutional Investor to demand that Tyco file a registration statement
under the Securities Act of 1933, as amended (the "Securities Act"), covering
the Registrable Securities requested by such Institutional Investor and to use
its best efforts to cause such registration statement to become effective. If
the Company receives a demand for registration as provided in the previous
sentence, it is required to give notice of such demand to all other Holders and,
subject to certain limitations, to use its best efforts to include in the
registration statement Registrable Securities which any other Holder has
requested, within 15 business days after the date of such notice, to be
included. Each Institutional Investor is entitled to make one demand for
registration. However, the Company is not required to file a registration
statement unless the Holders have requested registration of a prescribed minimum
number of shares of Common Stock. The Company is entitled to postpone such a
registration statement for a reasonable period not to exceed 180 days in certain
circumstances.
Registrable Securities include the Common Stock received in the Merger in
exchange for Kendall Common Stock that prior to the Merger was entitled to
registration rights under the Registration Rights Agreement; Warrants received
in the Merger in exchange for warrants to acquire Kendall Common Stock that
prior to the Merger were entitled to registration rights, and shares of Common
Stock issuable upon exercise of such Warrants; shares of Common Stock issuable
upon exercise of Reallocation Rights; and securities issuable with respect to
such Common Stock or Warrants by way of a stock dividend or stock split or in
connection with a combination of shares, recapitalization, merger,
consolidation, reorganization or otherwise. Securities cease to be Registrable
Securities when disposed of pursuant to an effective registration statement or
sold or distributed to the public in reliance on an exemption from the
registration requirements of the Securities Act.
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<PAGE>
Piggyback Registration. The Registration Rights Agreement provides that if
Tyco proposes to register any of its equity securities, whether or not for its
own account (subject to certain exceptions), Tyco will give notice of such
registration to the Holders together with certain information concerning the
proposed offering. Upon the written request of any Holder delivered within 15
business days of the notice, Tyco will use its best efforts to effect the
registration under the Securities Act of all the Registrable Securities that the
Holder requests Tyco to register, provided that Tyco will be permitted not to
register or to delay the registration of such Registrable Securities if it
determines not to register or to delay the registration of the securities
otherwise intended to be registered.
If the registration involves an underwritten offering, all Holders
requesting inclusion in the underwritten offering must sell their Registrable
Securities to the underwriters on the same terms and conditions as apply to Tyco
or the other selling securityholders participating in such registration. If the
registration involves an underwritten offering and the managing underwriter
advises Tyco that, in its opinion, the number of securities proposed to be
registered must be limited due to market conditions, Tyco will include in such
registration first, the number of securities Tyco proposes to sell, and second,
the number of Registrable Securities of the Holders and securities of other
persons ("Other Persons") requested to be included in such registration that, in
the opinion of such managing underwriter, can be sold, allocated pro rata among
all such requesting Holders and Other Persons on the basis of the relative
number of securities as to which registration has been requested by each such
Holder and Other Person.
Tyco may not enter into any agreement that will grant any person piggyback
rights with respect to any demand registration of the Holders that fails to give
effect or diminishes the rights of Holders with respect to piggyback
registration as provided in the Registration Rights Agreement or that grants
registration rights to any person and does not require such person expressly to
recognize the rights of the Holders under the holdback provisions referred to
below.
Holdback Agreements. The Registration Rights Agreement provides that, if any
registration of Common Stock constituting Registrable Securities is made in
connection with an underwritten offering, the Holders will not effect any sale
or distribution, including in a private placement or pursuant to Rule 144 under
the Securities Act, of any Common Stock during the seven days prior to and
during the 180-day period following the effective date of such registration
statement. An amendment to the Registration Rights Agreement has been proposed
which would reduce the 180-day period referred to in the previous sentence to a
90-day period, or such shorter period as the managing underwriter of the
relevant underwritten offering agrees to, which amendment will become effective
if approved by the requisite percentages of Registrable Securities.
If any registration of Registrable Securities is made in connection with an
underwritten offering, Tyco agrees, and will use reasonable efforts to cause
other persons holding 5% or more of the Common Stock (other than institutional
investment managers) to agree, not to effect any sale or distribution of any of
Tyco's equity securities or of any security convertible into or exchangeable or
exercisable for any equity security of Tyco during the period beginning seven
days prior to the effective date of such registration statement and ending on
the earlier of (1) 180 days after such effective date, and (2) 90 days after
such effective date, if the managing underwriter in such underwritten offering
permits such sale or distribution as not materially adversely affecting the
offering. The Registration Rights Agreement provides that the Holders
participating in any such offering will use their reasonable efforts to obtain
such permission from the managing underwriter.
Certain Other Provisions. All expenses incident to Tyco's performance of its
registration obligations under the Registration Rights Agreement, including
filing fees and the reasonable fees and expenses of one counsel retained by the
Holders of a majority of the Registrable Securities being registered, will be
paid by Tyco. The foregoing does not include underwriting commissions or
discounts or transfer taxes, if any, attributable to the sale of Registrable
Securities by the Holders.
The Registration Rights Agreement contains customary indemnification
provisions whereby Tyco is obligated to indemnify and hold harmless the Holders
and certain related parties, and the Holders are
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<PAGE>
obligated under certain circumstances to indemnify and hold harmless Tyco and
certain related parties, in each case in connection with liabilities relating to
the registration of the Registrable Securities. The Registration Rights
Agreement also provides for certain rights of contribution in the event that
such indemnity is unavailable.
The Company has filed this Registration Statement to enable certain Selling
Shareholders to sell their respective shares of Common Stock and shares issuable
upon the exercise of Warrants and Reallocation Rights. The shares of Common
Stock of other participating Selling Shareholders are included in the
Registration Statement pursuant to piggyback registration rights under the
Registration Rights Agreement.
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<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in the United States purchase
agreement (the "U.S. Purchase Agreement") among the Company, the Selling
Shareholders and each of the underwriters named below (the "U.S. Underwriters"),
and concurrently with the sale of 1,552,404 shares of Common Stock to the
International Managers (as defined below), the Selling Shareholders severally
have agreed to sell to each of the U.S. Underwriters, and each of the U.S.
Underwriters severally has agreed to purchase from the Selling Shareholders, the
number of shares of Common Stock (or Warrants or Reallocation Rights to acquire
such shares of Common Stock) set forth opposite its name below:
<TABLE><CAPTION>
NUMBER OF
SHARES OF
U.S. UNDERWRITERS COMMON STOCK
- ------------------------------------------------------------- ------------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated...................................... 956,575
Goldman, Sachs & Co. ........................................ 956,574
Donaldson, Lufkin & Jenrette Securities Corporation.......... 956,574
Lehman Brothers Inc. ........................................ 956,574
BT Securities Corporation.................................... 400,000
J.P. Morgan Securities Inc. ................................. 400,000
Smith Barney Inc. ........................................... 400,000
S.G. Warburg & Co. Inc....................................... 400,000
Wertheim Schroder & Co. Incorporated......................... 400,000
Gabelli & Company, Inc. ..................................... 200,000
C.J. Lawrence/Deutsche Bank Securities Corporation........... 200,000
------------
Total............................................. 6,226,297
------------
------------
</TABLE>
Merrill Lynch, Pierce, Fenner & Smith Incorporated, Goldman, Sachs & Co.,
Donaldson, Lufkin & Jenrette Securities Corporation and Lehman Brothers Inc. are
acting as representatives (the "U.S. Representatives") of the U.S. Underwriters.
The Company and the Selling Shareholders have also entered into a purchase
agreement (the "International Purchase Agreement" and, together with the U.S.
Purchase Agreement, the "Purchase Agreements") with Merrill Lynch International
Limited, Goldman Sachs International, Donaldson, Lufkin & Jenrette Securities
Corporation and Lehman Brothers International (Europe) acting as Lead Managers
and certain other underwriters outside the United States and Canada (the
"International Managers" and, together with the U.S. Underwriters, the
"Underwriters"). Subject to the terms and conditions set forth in the
International Purchase Agreement and concurrently with the sale of 6,226,297
shares of Common Stock (or Warrants or Reallocation Rights to acquire such
shares of Common Stock) to the U.S. Underwriters pursuant to the U.S. Purchase
Agreement, the Selling Shareholders severally have agreed to sell to the
International Managers, and the International Managers have severally agreed to
purchase, an aggregate of 1,552,404 shares of Common Stock (or Warrants or
Reallocation Rights to acquire such shares of Common Stock). The initial public
offering price per share and total underwriting discounts per share are
identical under the U.S. Purchase Agreement and the International Purchase
Agreement.
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<PAGE>
In each Purchase Agreement, the several U.S. Underwriters and the several
International Managers have agreed, respectively, subject to the terms and
conditions set forth in such Purchase Agreement, to purchase all of the shares
of Common Stock (or Warrants or Reallocation Rights to acquire such shares of
Common Stock) being sold pursuant to such Purchase Agreement if any of such
shares of Common Stock (or Warrants or Reallocation Rights to acquire such
shares of Common Stock) being sold pursuant to such Purchase Agreement are
purchased. Under certain circumstances, the commitments of non-defaulting U.S.
Underwriters or International Managers (as the case may be) may be increased.
The sale of Common Stock (or Warrants or Reallocation Rights to acquire such
shares of Common Stock) to the U.S. Underwriters is conditioned upon the sale of
shares of Common Stock (or Warrants or Reallocation Rights to acquire such
shares of Common Stock) to the International Managers.
The U.S. Representatives have advised the Selling Shareholders that the U.S.
Underwriters propose to offer the shares of Common Stock offered hereby to the
public initially at the public offering price set forth on the cover page of
this Prospectus and to certain dealers at such price less a concession not in
excess of $.95 per share of Common Stock. The U.S. Underwriters may allow, and
such dealers may reallow, a discount not in excess of $.10 per share of Common
Stock on sales to certain other dealers. After the Offerings, the public
offering price, concession and discount may be changed.
The purchase price of the shares of Common Stock to be acquired by the
Underwriters upon the exercise of Warrants will be paid to the Company to the
extent of the exercise price of the A Warrants ($11.94 per share) and the
exercise price of the B Warrants ($15.92 per share), and the balance (net of
underwriting discount) will be paid to the Selling Shareholders. The purchase
price of the shares of Common Stock to be acquired by the Underwriters upon the
exercise of Reallocation Rights will be paid to the Kendall Investors to the
extent of the exercise price of the Reallocation Rights ($11.94 per share), and
the balance (net of underwriting discount) will be paid to the Selling
Shareholders.
Certain holders of Common Stock participating in the Offerings have granted
an option to the U.S. Underwriters, exercisable during the 30-day period after
the date of this Prospectus, to purchase up to an aggregate of 609,927
additional shares of Common Stock at the public offering price set forth on the
cover page of this Prospectus, less the underwriting discount. The U.S.
Underwriters may exercise this option only to cover over-allotments, if any,
made on the sale of Common Stock offered hereby. To the extent that the U.S.
Underwriters exercise this option, each U.S. Underwriter will be obligated,
subject to certain conditions, to purchase the number of additional shares of
Common Stock proportionate to such U.S. Underwriter's initial amount reflected
in the foregoing table. Certain holders of Common Stock participating in the
Offerings also have granted an option to the International Managers, exercisable
during the 30-day period after the date of this Prospectus, to purchase up to an
aggregate of 152,065 additional shares of Common Stock to cover over-allotments,
if any, on terms similar to those granted to the U.S. Underwriters.
The Selling Shareholders have been informed that the U.S. Underwriters and
the International Managers have entered into an agreement (the "Intersyndicate
Agreement") providing for the coordination of their activities. Under the terms
of the Intersyndicate Agreement, the U.S. Underwriters and the International
Managers are permitted to sell shares of Common Stock (or Warrants or
Reallocation Rights to acquire such shares of Common Stock) to each other for
purposes of resale at a per share of Common Stock price equal to the initial
public offering price, less an amount not greater than the selling concession
less an amount equal to the exercise price in the case of Warrants or
Reallocation Rights. Under the terms of the Intersyndicate Agreement, the
International Managers and any dealer to whom they sell shares of Common Stock
(or Warrants or Reallocation Rights to acquire such shares of Common Stock) will
not offer to sell or sell shares of Common Stock (or Warrants or Reallocation
Rights to acquire such shares of Common Stock) to persons who are United States
persons or Canadian persons or to persons they believe intend to resell to
persons who are United States persons or Canadian persons, and the U.S.
Underwriters and any dealer to whom they sell shares of Common Stock will not
offer to sell or sell shares of Common Stock (or Warrants or Reallocation Rights
to acquire such shares
36
<PAGE>
of Common Stock) to persons who are non-United States and non-Canadian persons
or to persons they believe intend to resell to non-United States and
non-Canadian persons, except in each case for transactions pursuant to such
agreement.
The Company and the Selling Shareholders have agreed, subject to certain
exceptions relating to employee benefit arrangements and transfers to certain
affiliated persons who execute a lock-up agreement, that they will not, directly
or indirectly, for a period of 90 days following the date of this Prospectus,
except with the prior consent of Merrill Lynch, Pierce, Fenner & Smith
Incorporated, on behalf of the Underwriters, sell, offer to sell, grant any
option for the sale of, or otherwise dispose of, any Common Stock or any
securities convertible into or exercisable for Common Stock.
The Company and the Selling Shareholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act.
VALIDITY OF SHARES
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company and the Selling Shareholders by M. Brian Moroze, Esq.,
General Counsel of the Company, Exeter, New Hampshire. Mr. Moroze owns 8,348
shares of the Company's Common Stock. Certain other legal matters will be passed
upon for the Company by Kramer, Levin, Naftalis, Nessen, Kamin & Frankel, 919
Third Avenue, New York, New York 10022. Joshua M. Berman, a director and the
Secretary of the Company, is counsel to the law firm of Kramer, Levin, Naftalis,
Nessen, Kamin & Frankel and owns 18,000 shares of the Company's Common Stock.
Certain legal matters will be passed upon for the Underwriters by Fried, Frank,
Harris, Shriver & Jacobson (a partnership including professional corporations),
One New York Plaza, New York, New York 10004.
EXPERTS
The Consolidated Financial Statements of the Company giving retroactive
effect to the Merger of the Company and Kendall for the year ended June 30, 1994
and the combination of the financial statements of the Company and Kendall for
the year ended June 30, 1993 included in this Prospectus have been so included
in reliance on the report of Coopers & Lybrand L.L.P., independent accountants,
given on the authority of that firm as experts in accounting and auditing.
The Consolidated Financial Statements of the Company as of June 30, 1993 and
for the years ended June 30, 1993 and 1992 (prior to retroactive restatement to
account for the pooling of interests with Kendall on October 19, 1994) included
in this Prospectus have been so included in reliance on the report (which
includes an explanatory paragraph relating to the fact that the Company changed
its method of accounting for income taxes and for post-retirement benefits other
than pensions in fiscal 1993) of Price Waterhouse LLP, independent accountants,
given on the authority of said firm as experts in auditing and accounting.
37
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE><CAPTION>
PAGE
----
<S> <C>
AUDITED CONSOLIDATED FINANCIAL STATEMENTS
TYCO INTERNATIONAL LTD.
Report of Independent Accountants, Coopers & Lybrand L.L.P......................... F-2
Report of Independent Accountants, Price Waterhouse LLP............................ F-3
Consolidated Balance Sheet at June 30, 1994 and 1993............................... F-4
Consolidated Statement of Income for each of the three years in the
period ended June 30, 1994....................................................... F-5
Consolidated Statement of Shareholders' Equity for each of the three years
in the period ended June 30, 1994................................................ F-6
Consolidated Statement of Cash Flows for each of the three years in the
period ended June 30, 1994....................................................... F-7
Notes to Consolidated Financial Statements......................................... F-8
<CAPTION>
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
<S> <C>
TYCO INTERNATIONAL LTD.
Consolidated Balance Sheet at December 31, 1994.................................... F-25
Consolidated Statement of Income for the Six Months Ended December 31,
1994 and 1993.................................................................... F-26
Consolidated Statement of Shareholders' Equity for the Six Months Ended
December 31, 1994 and 1993....................................................... F-27
Consolidated Statement of Cash Flows for the Six Months Ended December 31,
1994 and 1993.................................................................... F-28
Notes to Consolidated Financial Statements (Unaudited)............................. F-29
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
and Shareholders of
TYCO INTERNATIONAL LTD.
We have audited the consolidated balance sheet of Tyco International Ltd. as
of June 30, 1994 and the related consolidated statements of income,
shareholders' equity and cash flows for the year ended June 30, 1994. 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 audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Tyco
International Ltd. at June 30, 1994, and the consolidated results of operations
and cash flows for the year ended June 30, 1994, in conformity with generally
accepted accounting principles.
We have audited the consolidated balance sheet of Kendall International,
Inc. and subsidiaries as of June 30, 1993 and the related consolidated
statements of income and cash flows for the year ended June 30, 1993, prior to
their restatement for the 1994 pooling of interests. The contribution of Kendall
International, Inc. and subsidiaries to total assets, revenues and net income
before cumulative effect of accounting changes represented 22 percent, 21
percent and 21 percent of the respective restated totals. Separate financial
statements of Tyco International Ltd. included in the 1993 restated consolidated
balance sheet and statements of income and cash flows were audited and reported
on separately by other auditors. In addition, the financial statements of Tyco
International Ltd. for the year ended June 30, 1992, which represents 100% of
the combined restated financial statements for that period, were audited and
reported on by other auditors. We also audited the combination of the
accompanying consolidated balance sheet as of June 30, 1993 and the consolidated
statements of income and cash flows for the year ended June 30, 1993, after
restatement for the 1994 pooling of interests; in our opinion, such consolidated
statements have been properly combined on the basis described in Note 1 of Notes
to Consolidated Financial Statements.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
December 22, 1994
F-2
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
and Shareholders of
TYCO INTERNATIONAL LTD.
(formerly Tyco Laboratories, Inc.)
In our opinion, the consolidated balance sheet and the related consolidated
statements of income, of cash flows and of changes in stockholders' equity (not
presented separately herein) present fairly, in all material respects, the
financial position of Tyco International Ltd., formerly Tyco Laboratories, Inc.,
and its subsidiaries at June 30, 1993 and the results of their operations and
their cash flows for each of the two years in the period ended June 30, 1993
(prior to the retroactive restatement to account for the pooling of interests),
in conformity with generally accepted accounting principles. 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 of these statements in accordance with
generally accepted auditing standards 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 provide a reasonable basis for the opinion expressed
above. We have not audited the consolidated financial statements of Tyco
International Ltd. for any period subsequent to June 30, 1993.
As discussed in Notes 1, 8 and 12, the Company changed its method of
accounting for income taxes and for post-retirement benefits other than pensions
in fiscal 1993.
PRICE WATERHOUSE LLP
Boston, Massachusetts
August 3, 1993
F-3
<PAGE>
CONSOLIDATED BALANCE SHEET
<TABLE><CAPTION>
AT JUNE 30
------------------------
1994 1993
---------- ----------
(IN THOUSANDS EXCEPT
SHARE DATA)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents.......................................... $ 75,843 $ 50,041
Receivables, less allowance for doubtful accounts of $29,311 in
1994 and $28,981 in 1993......................................... 515,160 622,178
Contracts in process............................................... 79,475 77,925
Inventories........................................................ 517,068 502,338
Deferred income taxes.............................................. 101,837 82,663
Prepaid expenses................................................... 54,904 54,763
---------- ----------
1,344,287 1,389,908
---------- ----------
PROPERTY AND EQUIPMENT:
Land............................................................... 33,235 34,718
Buildings.......................................................... 257,485 253,645
Machinery and equipment............................................ 647,058 630,479
Leasehold improvements............................................. 15,166 13,037
Construction in progress........................................... 42,648 47,656
Accumulated depreciation........................................... (385,719) (362,537)
---------- ----------
609,873 616,998
---------- ----------
GOODWILL AND OTHER INTANGIBLE ASSETS............................... 918,791 868,151
REORGANIZATION VALUE IN EXCESS OF IDENTIFIABLE ASSETS.............. 115,201 185,892
DEFERRED INCOME TAXES.............................................. 112,691 80,493
OTHER ASSETS....................................................... 39,978 23,524
---------- ----------
TOTAL ASSETS....................................................... $3,140,821 $3,164,966
---------- ----------
---------- ----------
CURRENT LIABILITIES:
Loans payable and current maturities of long-term debt............. $ 163,164 $ 239,601
Accounts payable................................................... 332,004 290,256
Accrued expenses................................................... 382,576 411,877
Contracts in process--billings in excess of costs.................. 63,324 49,676
Income taxes....................................................... 73,301 57,344
---------- ----------
1,014,369 1,048,754
DEFERRED INCOME TAXES.............................................. 13,698 8,032
LONG-TERM DEBT..................................................... 588,491 812,585
OTHER LIABILITIES.................................................. 157,237 156,809
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Preferred stock, $1 par value, authorized 2,000,000 shares; none
outstanding...................................................... -- --
Common stock, $.50 par value, authorized 180,000,000 shares;
outstanding 71,084,293 shares in 1994 and 70,924,026 shares
in 1993, net of reacquired shares of 7,600,747 in 1994 and
7,614,092 in 1993................................................ 35,542 35,462
Capital in excess of par value, net of deferred compensation of
$9,318 in 1994 and $12,314 in 1993............................... 567,476 558,481
Currency translation adjustment.................................... (40,874) (89,386)
Retained earnings.................................................. 804,882 634,229
---------- ----------
1,367,026 1,138,786
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY......................... $3,140,821 $3,164,966
---------- ----------
---------- ----------
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
CONSOLIDATED STATEMENT OF INCOME
<TABLE><CAPTION>
YEAR ENDED JUNE 30(1)
--------------------------------------
1994 1993 1992
---------- ---------- ----------
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
SALES.................................................. $4,076,383 $3,919,357 $3,066,485
---------- ---------- ----------
COSTS AND EXPENSES:
Cost of sales.......................................... 3,003,194 2,909,947 2,390,218
Non-recurring inventory charge......................... -- 22,485 --
Selling, general and administrative.................... 682,568 682,520 446,244
Restructuring and severance charges.................... -- 39,325 25,612
Interest............................................... 62,431 85,785 63,261
---------- ---------- ----------
3,748,193 3,740,062 2,925,335
---------- ---------- ----------
Income before income taxes, extraordinary item and
cumulative effect of accounting changes.............. 328,190 179,295 141,150
Income taxes........................................... 138,999 84,837 45,884
---------- ---------- ----------
Income before extraordinary item and cumulative effect
of accounting changes................................ 189,191 94,458 95,266
Extraordinary item, net of tax benefit................. -- 2,816 --
---------- ---------- ----------
Income before cumulative effect of accounting
changes.............................................. 189,191 91,642 95,266
Cumulative effect of accounting changes................ -- 71,040 --
---------- ---------- ----------
NET INCOME............................................. $ 189,191 $ 20,602 $ 95,266
---------- ---------- ----------
---------- ---------- ----------
INCOME PER SHARE:
Before extraordinary item and cumulative effect of
accounting changes................................... $ 2.56 $ 1.30 $ 2.06
Extraordinary item..................................... -- (.04) --
Cumulative effect of accounting changes................ -- (.98) --
---------- ---------- ----------
NET INCOME............................................. $ 2.56 $ .28 $ 2.06
---------- ---------- ----------
---------- ---------- ----------
COMMON EQUIVALENT SHARES............................... 73,770 72,316 46,290
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
- ------------
(1) The consolidated financial statements reflect the combined results of
operations of Tyco and Kendall for the years ended June 30, 1994 and 1993.
Results for the year ended June 30, 1992 reflect only the results of Tyco.
See Note 1 to these financial statements.
See notes to consolidated financial statements.
F-5
<PAGE>
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
<TABLE><CAPTION>
FOR THE THREE YEARS ENDED
JUNE 30, 1994(1)
-----------------------------------------------------
COMMON CAPITAL IN CURRENCY
STOCK, $.50 EXCESS OF TRANSLATION RETAINED
PAR VALUE PAR VALUE ADJUSTMENT EARNINGS
------------ ---------- ----------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
BALANCE AT JUNE 30, 1991...................... $ 23,527 $ 370,628 $ (42,351) $553,347
Net income.................................. 95,266
Dividends................................... (16,934)
Restricted stock grants, cancellations,
tax benefits and other.................... (24) 2,974
Currency translation adjustment............. 50,086
Amortization of deferred compensation....... 4,032
------------ ---------- ----------- --------
BALANCE AT JUNE 30, 1992...................... 23,503 377,634 7,735 631,679
Effect of Kendall Merger.................... 12,301 190,077
Net income.................................. 20,602
Dividends................................... (18,052)
Management equity compensation.............. 2,126
Restricted stock grants, cancellations,
tax benefits and other.................... (82) 3,015
Purchase of treasury stock.................. (260) (16,705)
Currency translation adjustment............. (97,121)
Amortization of deferred compensation....... 2,334
------------ ---------- ----------- --------
BALANCE AT JUNE 30, 1993...................... 35,462 558,481 (89,386) 634,229
Net income.................................. 189,191
Dividends................................... (18,538)
Management equity compensation.............. 1,273
Restricted stock grants, cancellations,
tax benefits and other.................... 15 2,409
Warrants, options exercised................. 65 2,215
Purchase of warrant......................... (600)
Currency translation adjustment............. 48,512
Amortization of deferred compensation....... 3,698
------------ ---------- ----------- --------
BALANCE AT JUNE 30, 1994...................... $ 35,542 $ 567,476 $ (40,874) $804,882
------------ ---------- ----------- --------
------------ ---------- ----------- --------
</TABLE>
- ------------
(1) The consolidated financial statements reflect the combined equity of Tyco
and Kendall for the years ended June 30, 1994 and 1993. Results for the year
ended June 30, 1992 reflect only the equity of Tyco. See Note 1 to these
financial statements.
See notes to consolidated financial statements.
F-6
<PAGE>
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE><CAPTION>
YEAR ENDED JUNE 30(1)
-----------------------------------
1994 1993 1992
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................................... $ 189,191 $ 20,602 $ 95,266
Adjustments to reconcile net income to net cash provided
by operating activities:
Extraordinary item..................................... -- 2,816 --
Cumulative effect of accounting changes................ -- 71,040 --
Depreciation........................................... 83,027 79,076 66,501
Amortization of intangibles............................ 40,621 42,505 28,107
Amortization of debt discount and issue costs.......... 1,232 6,768 --
Provision for management equity plans.................. 6,325 7,256 --
Non-recurring inventory charge......................... -- 22,485 --
Deferred income taxes.................................. 31,459 (2,547) (13,832)
Provision for losses on accounts receivable and inventory
writedowns........................................... 14,823 12,663 11,809
Changes in assets and liabilities net of effects from
acquisitions:
Decrease (increase) in accounts receivable........... 108,847 (28,040) 27,573
Decrease (increase) in contracts in process.......... 12,471 (8,016) 681
(Increase) decrease in inventory..................... (11,766) 1,204 10,461
(Decrease) increase in accounts payable and accrued
expenses........................................... (26,189) 47,277 (48,127)
Increase (decrease) in income taxes payable.......... 15,389 (3,588) (5,527)
Other, net........................................... 26,998 8,543 2,067
--------- --------- ---------
Net cash provided by operating activities.............. 492,428 280,044 174,979
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of acquired assets................... 18,054 -- 14,289
Capital expenditures..................................... (89,802) (94,399) (67,650)
Purchases of businesses, net of cash acquired............ (72,640) (72,008) (18,835)
--------- --------- ---------
Net cash used in investing activities.................. (144,388) (166,407) (72,196)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt............................. 104,628 49,955 199,528
Payments on long-term debt and lines of credit........... (409,692) (126,960) (275,951)
Purchase of warrant and treasury stock................... (600) (16,965) --
Dividends paid........................................... (18,510) (17,640) (16,934)
Financial restructuring and financing fees paid.......... (344) (5,631) --
Issuance of stock and warrants........................... 2,280 -- --
--------- --------- ---------
Net cash used in financing activities.................. (322,238) (117,241) (93,357)
--------- --------- ---------
Net change in cash and cash equivalents.................. 25,802 (3,604) 9,426
Cash and cash equivalents at beginning of year........... 50,041 32,135 22,709
Kendall cash and cash equivalents at beginning of year... -- 21,510 --
--------- --------- ---------
Cash and cash equivalents at end of year................. $ 75,843 $ 50,041 $ 32,135
--------- --------- ---------
--------- --------- ---------
SUPPLEMENTARY CASH FLOW DISCLOSURE:
Interest paid............................................ $ 72,640 $ 82,952 $ 77,823
--------- --------- ---------
--------- --------- ---------
Income taxes paid (net of refunds)....................... $ 73,751 $ 55,112 $ 34,980
--------- --------- ---------
--------- --------- ---------
</TABLE>
- ------------
(1) The consolidated financial statements reflect the combined cash flows of
Tyco and Kendall for the years ended June 30, 1994 and 1993. Results for the
year ended June 30, 1992 reflect only the cash flows of Tyco. See Note 1 to
these financial statements.
See notes to consolidated financial statements.
F-7
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation--The consolidated financial statements include the
accounts of Tyco International Ltd. ("Tyco" or the "Company") and its
subsidiaries. As described more fully in Note 2, on October 19, 1994 a wholly
owned subsidiary of Tyco merged with Kendall International, Inc. ("Kendall").
These consolidated financial statements have been prepared following the pooling
of interests method of accounting and reflect the combined financial position,
operating results and cash flows of Tyco and Kendall as if they had been
combined for all periods presented subsequent to June 30, 1992, the date on
which Kendall undertook a financial restructuring.
During the first half of calendar 1992, Kendall undertook a financial
restructuring (the "Restructuring") which reduced its debt and associated
interest expense to a level supportable by its operations. The Restructuring was
consummated through a prepackaged plan of reorganization under Chapter 11 of the
U.S. Bankruptcy Code. For accounting purposes, the Restructuring was effective
as of June 30, 1992, the date Kendall adopted "fresh-start" accounting pursuant
to the American Institute of Certified Public Accountants Statement of Position
No. 90-7 ("SOP 90-7"). At that date, Kendall's assets and liabilities were
adjusted to their reorganization or fair market values, and a new reporting
entity was created with no retained earnings or accumulated deficit.
Accordingly, Kendall's results prior to June 30, 1992 have not been combined
with those of Tyco in these financial statements.
Investments--All highly liquid investments purchased with a maturity of
three months or less are considered to be cash equivalents.
Inventories and Contracts--Inventories are recorded at the lower of cost
(first-in, first-out) or market. The non-recurring inventory charge reflected in
the accompanying consolidated statement of income for the year ended June 30,
1993 represents the cost of sales impact of the inventory write-up required by
the asset valuation requirements of fresh-start reporting.
Contract sales for installation of fire protection systems are recorded on
the percentage-of-completion method. Profits recognized on contracts in process
are based upon estimated contract revenue and related cost at 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. Sales of
underwater cable systems are also recorded on the percentage-of-completion
method. Selling, general and administrative expenditures are expensed as
incurred. Accounts receivable include amounts not yet billed because of
retainage provisions for fire protection contracts. Retention balances of $24.8
million at June 30, 1994 which become due upon contract completion and
acceptance are expected to be substantially collected during fiscal 1995.
Property and Equipment--Property and equipment are principally recorded at
cost, except that in accordance with fresh-start reporting, all property, plant
and equipment of Kendall was restated to reflect reorganization value on June
30, 1992, which approximated fair value on a continued use basis. 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, which range from 3 to 45 years.
Goodwill and Other Intangible Assets--Goodwill is being amortized on a
straight-line basis over 40 years. Accumulated amortization amounted to $112.5
million at June 30, 1994 and $88.9 million at June 30, 1993. Impairment of
goodwill, if any, is measured on the basis of whether anticipated undiscounted
operating cash flows generated by the acquired businesses will recover the
recorded goodwill balances over the remaining amortization period. At June 30,
1994 and 1993, no impairment of such assets was indicated.
F-8
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
Other intangible assets include patents, trademarks and other intangibles,
which are being amortized on a straight line basis over lives ranging from 2 to
30 years. At June 30, 1994 and 1993, accumulated amortization amounted to $12.7
million and $6.9 million respectively.
Reorganization Value in Excess of Identifiable Assets--The reorganization
value of Kendall was determined based on the purchase price paid for new Kendall
common stock issued as part of Kendall's Restructuring (See Basis of
Presentation, above). Based on the allocation of reorganization value in
conformity with procedures specified by SOP 90-7, the portion of reorganization
value which could not be attributed to specific tangible or identifiable
intangible assets has been reported as reorganization value in excess of
identifiable assets. See Note 8.
Reorganization value is being amortized using the straight line method over
20 years. Accumulated amortization amounted to $17.0 million and $9.7 million at
June 30, 1994 and 1993, respectively.
Research and Development--Company funded research and development
expenditures are expensed when incurred.
Translation of Foreign Currency--Assets and liabilities of the Company's
foreign subsidiaries, other than those operating in highly inflationary
environments, are translated into U.S. dollars using year-end exchange rates.
Revenues and expenses of foreign subsidiaries are translated at the average
exchange rates effective during the year. Foreign currency translation gains and
losses are included as a separate component of 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.
Gains and losses resulting from foreign currency transactions, the amounts
of which are not significant, are included in net income.
Interest Rate Swaps, Currency Options and Other Contracts--The Company
enters into a variety of interest rate swaps, currency options, and other
contracts in its management of interest costs and foreign currency exposures.
The interest rate swaps, which hedge interest rates on certain indebtedness,
involve the exchange of fixed and floating rate interest payment obligations
over the life of the related agreement without the exchange of the notional
payment obligation. The differential to be paid or received is accrued as
interest rates change and recognized over the life of the agreement as an
adjustment to interest expense.
Foreign currency options, acquired for the purpose of hedging foreign
operating income generally for periods not exceeding twelve months, are marked
to market with any realized and unrealized gains or losses reflected in selling,
general and administrative expense. The Company also enters into forward
exchange contracts to hedge certain foreign currency transactions for periods
consistent with the terms of the underlying transactions. The forward exchange
contracts generally have maturities that do not exceed one year. Gains and
losses on contracts qualifying as hedges are deferred and included in the
measurement of the related foreign currency transaction. Losses are not deferred
if it is estimated that deferral would lead to recognizing losses in a later
period. At June 30, 1994, the total amount of foreign currency transactions
covered by hedging contracts was $26.4 million. Such hedging contracts
approximate fair value.
F-9
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
Income Per Share--Net income per share is calculated on the basis of the
weighted average number of shares outstanding plus common equivalent shares
arising from the effect of stock options and warrants using the treasury stock
method.
Accounting Changes--Effective July 1, 1992 Tyco adopted the provisions of
Statement of Financial Accounting Standards ("SFAS") 109 "Accounting for Income
Taxes" and SFAS 106 "Employers' Accounting for Post-Retirement Benefits Other
Than Pensions" (see Notes 8 and 12, respectively, to the consolidated financial
statements.) At July 1, 1992 the cumulative effect of the accounting changes was
to reduce net income by $71.0 million ($0.98 per share). Kendall adopted SFAS
109 and SFAS 106 effective with its Restructuring (See Basis of Presentation,
above), and accordingly there is no cumulative effect reflected in the financial
statements.
Reclassifications--Certain prior year amounts have been reclassified to
conform with current year presentation.
2. THE MERGER
On October 19, 1994, a wholly-owned subsidiary of Tyco merged with Kendall
(the "Merger"). Shareholders of Kendall received 1.29485 shares of Tyco common
stock for each share of Kendall common stock. The transaction qualifies for
pooling of interests accounting treatment, which is intended to present as a
single interest, common shareholder interests which were previously independent.
Accordingly, the historical financial statements for periods prior to the
consummation of the combination are restated as though the companies had been
combined during such periods. Financial statements for all periods prior to
Kendall's Restructuring (see Note 1) include only Tyco's results of operations
and cash flows.
All fees and expenses related to the Merger and to the integration of the
combined companies will be expensed as required under the pooling of interests
accounting method. These expenses have not been reflected in the consolidated
statement of income, but will be reflected in the consolidated statement of
income of the Company for the quarter ended December 31, 1994. Such fees and
expenses are presently estimated to be $37.2 million ($31.2 million after-tax).
The charge includes $18.6 million for financial advisory, legal, accounting and
other direct transaction fees, $14.9 million for payments under severance and
employment agreements and other costs associated with certain compensation
plans, and $3.7 million for other acquisition related and integration costs.
3. ACQUISITIONS
During fiscal 1994, the Company acquired a manufacturer of disposable
medical supplies, three manufacturers and distributors of medical electrodes and
related products, the assets of a flexible packaging business, the assets of a
manufacturer of malleable and cast iron fittings, a manufacturer of pipe
fittings products and a distributor and servicer of fire extinguishers and
related products for an aggregate of $72.6 million in cash and a note payable of
$3.6 million. Also during fiscal 1994, the Company sold certain of its European
fire products manufacturing and distribution businesses for cash proceeds of
$18.1 million and notes receivable of $14.8 million. The effect of these
transactions on the Company's financial position and earnings was not
significant.
During fiscal 1993, the Company acquired three flow control companies for an
aggregate of $67.1 million, and five fire protection companies for an aggregate
of $4.9 million. The effect of these acquisitions on the Company's financial
position and earnings was not significant.
F-10
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
3. ACQUISITIONS--(CONTINUED)
The acquisitions were accounted for by the purchase method, and the results
of operations have been consolidated with the Company's results from their
respective acquisition dates.
4. RESTRUCTURING AND SEVERANCE CHARGES
During fiscal 1993 and fiscal 1992, the Company recorded restructuring and
severance charges of $39.3 million ($27.3 million after-tax) and $25.6 million
($14.9 million after-tax), respectively. These charges include severance costs,
facilities consolidation costs, writedown of assets to net realizable value, and
professional fees and other costs associated with the restructurings. The fiscal
1993 charges were principally for personnel reductions in the European and
Australian fire protection contracting businesses, as well as severance and
excess facilities costs associated with the reorganization of Grinnell flow
control distribution operations into regional distribution centers in the United
States to reduce inventory levels, lower operating costs and improve customer
service. Fiscal 1993 charges also included a loss provision associated with the
Company's determination to dispose of a U.S. flow control pipe manufacturing
facility and severance and other costs associated with the shutdown of a printed
circuit board facility. The fiscal 1992 charges were principally for costs
associated with the temporary shutdown of a U.S. flow control pipe manufacturing
facility and personnel reductions at a European fire products manufacturing
facility. Fiscal 1992 charges also included personnel reductions in North
American fire protection operations and corporate headquarters and the
reorganization of certain North American Grinnell flow control distribution
operations. At June 30, 1994, $10.3 million of the fiscal 1993 restructuring
charge is accrued. This relates primarily to the reorganization of Grinnell flow
control distribution operations, European facilities rationalization and
remaining severance payments. The Company will complete the reorganization
process in fiscal 1995.
5. INDEBTEDNESS
Long-term debt is as follows:
<TABLE><CAPTION>
AT JUNE 30
----------------------
1994 1993
-------- ----------
(IN THOUSANDS)
<S> <C> <C>
Credit agreements................................... $ 94,447 $ 181,395
Uncommitted lines of credit......................... 22,000 164,000
Accounts receivable facility........................ -- 83,000
Insurance company notes............................. 135,000 240,000
8.25% subordinated debt due 2003.................... 100,000 100,000
6.375% public debentures due 2004................... 104,644 --
9.5% public debentures due 2022..................... 199,559 199,543
8% public debentures due 2023....................... 49,957 49,955
Other............................................... 46,048 34,293
-------- ----------
Total debt.......................................... 751,655 1,052,186
Less current portion................................ 163,164 239,601
-------- ----------
Long-term debt...................................... $588,491 $ 812,585
-------- ----------
-------- ----------
</TABLE>
Under Tyco's credit agreement with a group of commercial banks, Tyco had the
right until July 1997 to borrow $200 million or a portion thereof for its
general corporate purposes. Interest payable on borrowings was variable based
upon Tyco's option of selecting a certificate of deposit rate
F-11
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
5. INDEBTEDNESS--(CONTINUED)
plus 0.5%, a Eurodollar rate plus 0.375% or a base rate, as defined. Kendall had
a $100 million revolving credit facility which was available through December
1998. Interest was variable based upon the option of selecting LIBOR plus 1.75%
or a bank rate, as defined, plus 0.5%. Kendall's borrowings under the facility
were collateralized by substantially all of its assets. In October 1994, the
Company replaced those agreements with a new credit agreement which gives the
Company the right to borrow $300 million or a portion thereof until October
1999. The principal amount then outstanding will be due and payable at that
time. Interest payable on borrowings is variable based upon the Company's option
of selecting a Eurodollar rate plus 0.325%, a certificate of deposit rate plus
0.45% or a base rate, as defined.
The Company's uncommitted lines of credit are borrowings from commercial
banks on an "as offered" basis. The borrowings and repayments occur daily and
contain no specific terms other than due dates and interest rates. The due dates
generally range from overnight to 90 days and interest rates approximate those
available under the Company's credit agreement.
The Company had an accounts receivable facility which expired in August
1993. Interest was variable based upon a defined commercial paper market rate
plus a facility fee of 0.5%. The facility was repaid with borrowings from
uncommitted lines of credit.
The insurance company notes consist of $80 million due in January 1995 and
$55 million due in June 1996, and bear interest at rates of 8.98% and 8.90%,
respectively.
In November 1994, the Company issued $145 million principal amount of 8.125%
debentures due 1999. The net proceeds from the sale of the notes were used, in
part, to refinance $100 million principal amount of Kendall's subordinated notes
due 2003. The balance will be used to refinance, in part, the $80 million
insurance company note due January 1995. Pending repayment of these notes, the
proceeds will be used to repay outstanding borrowings under various uncommitted
lines of credit.
In connection with the refinancing of Kendall's notes, unamortized bank
expenses and a call premium related to the refinanced debt of approximately $4.3
million will be reported, net of a $1.7 million tax benefit, as an extraordinary
loss for the Company's quarter ended December 31, 1994.
In January 1994, the Company issued $105 million principal amount of 6.375%
debentures due 2004. The net proceeds of the issuance were used to repay
insurance company notes of $105 million due in January 1994.
In April 1992, the Company issued $200 million principal amount of 9.5%
debentures due 2022. In March 1993, the Company issued $50 million principal
amount of 8% debentures due 2023. The net proceeds of the issuances were used to
refinance existing debt.
At June 30, 1994, the Company had interest rate swap agreements with a
number of financial institutions, having a total notional amount of $355
million, which effectively convert fixed rate debt to variable rate debt. Under
these agreements, the Company will receive payments at an average fixed rate of
6.09% and will make payments based on six month LIBOR which, at June 30, 1994,
was 5.25%. These agreements expire in the amounts of $100 million in each of
April 1995 and April 1997, $55 million in February 1996, $50 million in April
1996 and $50 million in March 1998. The impact of the Company's hedging
activities on its weighted average borrowing rate was a decrease of 1.1%, 0.8%
and an increase of 0.2% for fiscal 1994, 1993 and 1992, respectively. The impact
on reported interest was income of $7.0 million, $6.1 million and expense of
$1.7 million for fiscal 1994, 1993 and 1992, respectively.
F-12
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
5. INDEBTEDNESS--(CONTINUED)
During fiscal 1993, Kendall refinanced certain notes and borrowings
outstanding under its bank facilities. In connection with the refinancing, the
Company recorded a charge of approximately $4.6 million ($2.8 million after tax)
representing unamortized bank fees and original issue discount as an
extraordinary loss.
Under its various loan and credit agreements the Company is required to meet
certain covenants, none of which is considered restrictive to the operations of
the Company.
The aggregate amounts of total debt maturing during the next five fiscal
years are as follows (in thousands):
<TABLE>
<S> <C>
1995............................................................ $163,164
1996............................................................ 87,271
1997............................................................ 27,352
1998............................................................ 16,473
1999............................................................ 636
</TABLE>
6. SALE OF ACCOUNTS RECEIVABLE
On November 1, 1993, the Company entered into an agreement pursuant to which
it sold a percentage ownership interest in a defined pool of the Company's trade
receivables. As collections reduce accounts receivable included in the pool, the
Company sells participating interests in new receivables to bring the amount
sold up to the $150 million maximum permitted by the related agreement. Under
terms of the agreement the Company has retained substantially the same risk of
credit loss as if the receivables had not been sold and, accordingly, the full
amount of the allowance for doubtful accounts has been retained. Proceeds of
$150 million from the sale were used to reduce borrowings under uncommitted
lines of credit and are reported as operating cash flows in the Company's
consolidated statement of cash flows and a reduction of receivables in the
Company's consolidated balance sheet. The proceeds of sale are less than the
face amount of accounts receivable sold by an amount which approximates the
purchaser's financing cost of issuing its own commercial paper backed by these
accounts receivable. The discount from the face amount was $4.1 million during
the year ended June 30, 1994, and has been included in selling, general and
administrative expense in the Company's consolidated statement of income. The
Company, as agent for the purchaser, retains collection and administrative
responsibilities for the participating interests of the defined pool.
7. FINANCIAL INSTRUMENTS
The Company's financial instruments consist primarily of cash in banks,
temporary investments, accounts receivable and debt. In addition, the Company
has foreign currency options that hedge its exposure on net foreign income, as
well as interest rate swaps that effectively convert fixed rate debt to variable
rate debt. At June 30, 1994 the fair value of interest rate swaps was a $2.1
million liability, and the fair value of long-term debt was approximately $598.0
million, based on current interest rates. The fair value of financial
instruments in working capital approximated book value.
None of the Company's financial instruments represent a concentration of
credit risk 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 off-balance sheet financial instruments
would result in a significant loss to the Company if the counterparty failed to
perform according to the terms of its agreement.
F-13
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
7. FINANCIAL INSTRUMENTS--(CONTINUED)
In May 1993, the Financial Accounting Standards Board issued SFAS 114,
"Accounting by Creditors for Impairment of a Loan." This new standard must be
adopted no later than fiscal 1996. Adoption of this standard is not expected to
have a material effect on the Company's financial position or results of
operations.
8. INCOME TAXES
Provision for federal income taxes and differences between the provision at
the statutory rate and the amounts provided are as follows:
<TABLE><CAPTION>
YEAR ENDED JUNE 30
-------------------------------
1994 1993 1992
-------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Provision at statutory rate.................................. $114,866 $60,961 $ 47,991
State taxes.................................................. 11,511 5,783 6,377
Depreciation and amortization under purchase accounting...... 10,787 11,281 10,879
Foreign earnings taxed at different rates.................... 6,723 4,202 1,250
Revision of certain tax estimates............................ -- (6,739) (16,904)
Effect of rate changes....................................... (3,649) 7,752 --
Completed contract deferred tax adjustment................... -- -- (5,133)
Research and Development and Foreign Sales Corporation
benefits................................................... (2,710) (500) (500)
Other........................................................ 1,471 2,097 1,924
-------- ------- --------
Provision for income taxes on earnings before cumulative
effect of accounting changes............................... 138,999 84,837 45,884
Benefit of cumulative effect of accounting changes........... -- (12,273) --
-------- ------- --------
Provision for income taxes................................... 138,999 72,564 45,884
Deferred provision........................................... (21,113) (7,011) 13,832
-------- ------- --------
Current provision............................................ $117,886 $65,553 $ 59,716
-------- ------- --------
-------- ------- --------
</TABLE>
The provisions for fiscal 1994, 1993 and 1992 include $23.9 million, $14.3
million and $8.3 million, respectively, for foreign income taxes. The foreign
component of income (loss) before income taxes was $35.7 million, $(1.9)
million, and $10.7 million for fiscal 1994, 1993 and 1992, respectively.
Generally, no provision has been made for U.S. or additional foreign income
taxes on the undistributed earnings of foreign subsidiaries as such earnings are
expected to be permanently reinvested. A liability has been recorded for U.S.
taxes attributable to certain undistributed earnings in selected jurisdictions
where repatriation to the U.S. may be desirable. It is not practicable to
estimate the additional taxes related to the permanently reinvested earnings.
During fiscal 1993 and 1992, the Company resolved various tax issues and,
accordingly, revised certain tax estimates which resulted in reductions in tax
expense of $6.7 million and $16.9 million, respectively.
During fiscal 1993, the Company recorded additional nonrecurring tax expense
of $7.8 million due to tax rate decreases in certain foreign jurisdictions. The
expense results principally from reducing the carrying value of deferred tax
assets.
F-14
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
8. INCOME TAXES--(CONTINUED)
The completed contract deferred tax adjustment results from the completion
during fiscal 1992 of all contracts on the completed contract method for United
States tax purposes. Accordingly, the provision for fiscal 1992 reflects the
non-recurring reversal of the related deferred taxes originally provided at
higher rates.
Effective July 1, 1992 Tyco adopted the provisions of SFAS 109. At July 1,
1992 the cumulative effect of adopting this standard was to reduce net income by
$16.1 million ($0.22 per share). The impact on fiscal 1993's results was to
reduce net income by $3.5 million ($0.05 per share). Kendall had adopted the
provisions of SFAS 109 effective with its Restructuring (See Note 1) and,
accordingly, there is no cumulative impact reflected in the financial
statements.
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 at June 30, 1994 and 1993 are as follows:
<TABLE><CAPTION>
1994 1993
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Accrued liabilities and reserves.................... $122,382 $125,529
Accrued post-retirement benefit obligation.......... 35,248 34,084
Tax loss carryforwards.............................. 188,142 146,716
Other............................................... 3,142 1,473
Deferred tax liabilities:
Property, plant and equipment....................... (72,954) (80,206)
Contracts........................................... (9,027) (12,207)
Accrued liabilities and reserves.................... (6,793) (10,069)
Accrued interest.................................... -- (10,547)
Other............................................... (7,960) (2,378)
-------- --------
Net deferred income tax asset before valuation
allowance........................................... 252,180 192,395
Valuation allowance................................... (51,350) (37,271)
-------- --------
Net deferred income tax asset......................... $200,830 $155,124
-------- --------
-------- --------
</TABLE>
During fiscal 1994, Kendall recorded certain adjustments to its deferred tax
assets for the valuation of underlying tax attributes as of the effective date
of its Restructuring, primarily net operating loss carryforwards. These
adjustments resulted in an increase to the deferred tax asset accounts of
approximately $63.6 million, with a corresponding reduction in reorganization
value in excess of net identifiable assets.
As of June 30, 1994 the Company had approximately $185.9 million of net
operating loss carryforwards in certain foreign jurisdictions. Of these, $165.4
million have no expiration, with the remaining $20.5 million expiring between
fiscal year 1995 and 2002. Domestic operating loss carryforwards at June 30,
1994 were approximately $266.3 and will expire in the years 2003 to 2007. A
valuation allowance has been provided for operating loss carryforwards which are
not expected to be utilized.
Under the previous method of accounting for income taxes, the deferred
income tax provision resulted primarily from timing differences between
financial and income tax reporting. The significant components of the deferred
tax provision in fiscal 1992 were $5.1 million for completed contracts, $8.9
million for revision of tax estimates and $7.9 million for restructuring and
severance charges. No other additional component of the deferred tax provision
was material in fiscal 1992.
F-15
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
9. KEY EMPLOYEE LOAN PROGRAMS
Loans are made to employees under the 1981 and 1983 Key Employee Loan
Programs for the payment of taxes upon the vesting of shares granted under the
Company's Restricted Stock Ownership Plans. The loans are unsecured and
principally bear interest, payable annually, at prime rate except for loans
prior to September 1987 under the 1981 Employee Loan Program which bear interest
at 2%. Loans are generally repayable in ten years, except that earlier payments
are required under certain circumstances. Loans under these programs were $6.4
million and $5.7 million at June 30, 1994 and 1993, respectively.
10. CAPITAL STOCK
In July 1994, the Company's Board of Directors authorized the repurchase of
up to 2.9 million of its common shares.
In June 1994, the Company repurchased for $600,000 a warrant which entitled
the holder, Tyco Investments (Australia) Limited, formerly Wormald International
Limited, to purchase five million Tyco shares at a price of $70 per share.
In August 1992, the Company repurchased 520,000 shares of its common stock
at $32.625 per share from its former Chairman of the Board for an aggregate
purchase price of $17.0 million. The total cost of reacquired shares at June 30,
1994 and 1993 was $70.0 million and $70.1 million, respectively.
The Company's 1978 Restricted Stock Ownership Plan (the "1978 Plan")
provided for the award of 2,400,000 shares of common stock to key employees
through November 30, 1988. Under the 1978 Plan, 2,392,000 shares were granted,
net of surrenders. The 1983 Restricted Stock Ownership Plan (the "1983 Plan")
provided for the award of 3,400,000 shares of common stock to key employees
through October 18, 1993. Under the 1983 Plan, 2,918,533 shares were awarded,
net of surrenders. The Company's 1994 Restricted Stock Ownership Plan provides
for the award of 462,542 shares of common stock, all of which were reserved for
issuance as of June 30, 1994. Common stock is awarded subject to certain
restrictions with vesting varying over periods of one to ten years.
The fair market value of the shares at the time of the grant is amortized
(net of tax benefit for the deduction of such value) to expense over the period
of vesting. The unamortized portion of deferred compensation expense is recorded
as a reduction of shareholders' equity. Recipients of the restricted shares have
the right to vote such shares and receive dividends. Income tax benefits
resulting from compensation for 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 grant and
from the payment of dividends on unvested shares are credited to capital in
excess of par value.
In connection with the Restructuring, Kendall issued to holders of old
equity securities, warrants to purchase common stock at per share exercise
prices of $15.46 (the "A Warrants") and $20.62 (the "B Warrants" and together
with the A Warrants, the "Warrants). As a result of the Merger, these Warrants
became exercisable for the Company's stock at per share prices of $11.94 and
$15.92, respectively. The Warrants expire on July 7, 1999. During fiscal 1994,
25,336 A Warrants and 26,475 B Warrants were exercised. As of June 30, 1994
1,378,527 A Warrants and 1,414,321 B Warrants were issued and outstanding.
Kendall maintains a number of stock incentive plans under which officers,
directors and key employees have been granted options and other awards to
purchase common stock, generally, at prices
F-16
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
10. CAPITAL STOCK--(CONTINUED)
equal to at least 100% of the market price on the date of grant. As a result of
the Merger, these options became exercisable for the Company's stock.
Transactions under these plans during fiscal 1994 and 1993 were as follows:
<TABLE><CAPTION>
1994 1993
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Outstanding at beginning of period................... 1,336,933 1,285,139
Awards exercised..................................... (78,986) --
Awards granted....................................... 329,539 51,794
Awards cancelled..................................... (31,076) --
--------- ---------
Outstanding at June 30............................... 1,556,410 1,336,933
--------- ---------
--------- ---------
Exercisable at June 30............................... 252,496 --
--------- ---------
--------- ---------
</TABLE>
The exercise prices per share of the Company's common stock for options
outstanding at June 30, 1994 ranged in price from $7.96 to $39.19 per share.
Kendall has a restricted stock grant agreement which provides for the
issuance of up to 1,000,000 shares of common stock to a key executive. As a
result of the Merger, up to 1,294,850 shares of the Company's common stock
became issuable under the agreement. Rights under the grant agreement fully vest
on July 7, 2002, subject to accelerated vesting if Kendall achieves certain
annual financial operating targets, as specified in the grant agreement. As of
June 30, 1994 rights for 1,294,850 shares were outstanding under the grant
agreement. As of December 31, 1994 1,035,880 shares under the grant agreement
had vested. Compensation expense of $1.3 million and $2.1 million was recorded
for the grant during fiscal 1994 and 1993, respectively. Unamortized
compensation expense was $0.7 million at June 30, 1994.
Tyco paid cash dividends of $0.40, $0.38 and $0.36 per share in fiscal 1994,
1993 and 1992, respectively. Kendall did not pay dividends to its shareholders.
11. COMMITMENTS AND CONTINGENCIES
The Company occupies certain facilities under leases which expire at various
dates through the year 2021. Rental expense under these leases and leases for
equipment was $60.4 million, $63.7 million, and $47.6 million for fiscal 1994,
1993 and 1992, respectively. At June 30, 1994 the minimum lease payments under
noncancellable leases were as follows (in thousands):
<TABLE>
<S> <C>
1995............................................................. $52,300
1996............................................................. 40,299
1997............................................................. 30,931
1998............................................................. 23,780
1999............................................................. 16,643
2000-2021........................................................ 85,574
</TABLE>
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.
F-17
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
11. COMMITMENTS AND CONTINGENCIES--(CONTINUED)
The Company is involved in various stages of investigation and cleanup
related to environmental remediation matters. 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 a
reasonable possibility that remedial costs will be incurred with respect to
these sites in the aggregate amount in a range of $14.0 million to $50.5
million. At June 30, 1994, the Company has concluded that the most probable
amount which will be incurred within this range is $25.5 million, and such
amount is included in the caption accrued expenses in the accompanying
consolidated balance sheet. Based upon information available to the Company, at
those sites where there has been an allocation of the share of cleanup and such
liability could be joint and several, management believes it is probable that
other responsible parties will fully pay the cost apportioned 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 $25.5 million, the Company has concluded that its
payment of such estimated amounts will not have a material adverse effect on its
financial position or results of operations.
12. RETIREMENT PLANS
The Company has a number of noncontributory defined benefit retirement plans
covering certain of its domestic and foreign employees. 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.
The net periodic pension cost for all defined benefit pension plans include
the following components:
<TABLE><CAPTION>
YEAR ENDED JUNE 30
-------------------------------
1994 1993 1992
-------- -------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Service cost................................. $ 12,523 $ 11,451 $ 7,478
Interest..................................... 26,747 26,426 16,437
Actual return on assets...................... (7,717) (50,675) (9,358)
Net amortization and deferral................ (19,454) 24,467 (4,990)
-------- -------- -------
Net periodic pension cost.................... $ 12,099 $ 11,669 $ 9,567
-------- -------- -------
-------- -------- -------
</TABLE>
F-18
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
12. RETIREMENT PLANS--(CONTINUED)
Accrued (prepaid) pension cost at June 30, 1994 for defined benefit plans is
as follows:
<TABLE><CAPTION>
ASSETS EXCEED ACCUMULATED
ACCUMULATED BENEFITS
BENEFITS EXCEED ASSETS TOTAL
------------- -------------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Actuarial present value of accumulated benefit
obligations:
Vested............................................... $ 87,847 $223,462 $311,309
Non-vested........................................... 4,012 13,039 17,051
------------- -------------- --------
Total.............................................. 91,859 236,501 328,360
Effect of future salary increases...................... 7,214 11,831 19,045
------------- -------------- --------
Projected benefit obligations.......................... 99,073 248,332 347,405
Plan assets at fair value.............................. 113,597 185,976 299,573
------------- -------------- --------
Plan assets (in excess of) less than projected benefit
obligations.......................................... (14,524) 62,356 47,832
Unrecognized transition asset (liability).............. 292 (1,096) (804)
Unrecognized prior service cost........................ (617) (7,583) (8,200)
Additional minimum liability........................... -- 15,545 15,545
Unrecognized net loss.................................. (14,953) (17,115) (32,068)
------------- -------------- --------
Accrued (prepaid) pension cost......................... $ (29,802) $ 52,107 $ 22,305
------------- -------------- --------
------------- -------------- --------
</TABLE>
Accrued (prepaid) pension cost at June 30, 1993 for defined benefit plans is
as follows:
<TABLE><CAPTION>
ASSETS EXCEED ACCUMULATED
ACCUMULATED BENEFITS
BENEFITS EXCEED ASSETS TOTAL
------------- -------------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Actuarial present value of accumulated benefit
obligations:
Vested............................................... $ 209,528 $101,959 $311,487
Non-vested........................................... 7,665 8,021 15,686
------------- -------------- --------
Total.............................................. 217,193 109,980 327,173
Effect of future salary increases...................... 15,232 4,812 20,044
------------- -------------- --------
Projected benefit obligations.......................... 232,425 114,792 347,217
Plan assets at fair value.............................. 253,139 61,503 314,642
------------- -------------- --------
Plan assets (in excess of) less than projected benefit
obligations.......................................... (20,714) 53,289 32,575
Unrecognized transition asset (liability).............. 341 (1,209) (868)
Unrecognized prior service cost........................ (628) (6,389) (7,017)
Additional minimum liability........................... -- 12,400 12,400
Unrecognized net loss.................................. (13,603) (6,138) (19,741)
------------- -------------- --------
Accrued (prepaid) pension cost......................... $ (34,604) $ 51,953 $ 17,349
------------- -------------- --------
------------- -------------- --------
</TABLE>
The Company has terminated certain defined benefit pension plans and is in
the process of distributing the plans' assets to the participants. Also, in
connection with the sale of the European fire products businesses as described
in Note 3, there was a settlement of a pension plan in Germany. Gains and losses
resulting from the above were not material.
F-19
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
12. RETIREMENT PLANS--(CONTINUED)
Of the total plan obligations, 59% relate to domestic plans and 41% relate
to foreign plans. The average discount rate used in determining the actuarial
present value of the projected benefit obligation, weighted in relation to plan
obligations, was 8.5% and 8.2%, respectively, at June 30, 1994 and 1993. The
average rate of increase in future compensation levels was 5.7% at both June 30,
1994 and 1993. The weighted average long-term rate of return on assets was 9.4%
and 10.0%, respectively, at June 30, 1994 and 1993. Plan assets are invested
principally in equity and fixed income instruments.
The Company also has several defined contribution plans. Pension expense for
the defined contribution plans is computed as a percentage of participants'
compensation and was $15.6 million, $14.7 million and $10.9 million for fiscal
1994, 1993 and 1992, respectively. 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 $6.7 million, $6.9 million, and $6.6
million for fiscal 1994, 1993 and 1992, respectively.
Effective July 1, 1992 the Company adopted the provisions of SFAS 106. SFAS
106 requires the accrual method of accounting for post-retirement health care
and life insurance benefits based on actuarially determined costs. The Company
generally does not provide post-retirement benefits other than pensions for its
employees. Certain of the Company's acquired operations provide these benefits
to employees who were eligible at the date of acquisition. As of July 1, 1992
the Company recognized the full amount of its estimated accumulated
post-retirement benefit obligation. The effect on the date of adoption was to
reduce fiscal 1993 earnings by $54.9 million ($84.5 pre-tax) or $0.76 per share.
The charge has been reflected as a cumulative effect of an accounting change.
Net periodic post-retirement benefit cost for the years ended June 30, 1994
and 1993 reflects the following components:
<TABLE><CAPTION>
1994 1993
------- ------
(IN THOUSANDS)
<S> <C> <C>
Cost attributable to service during the period........... $ 372 $ 389
Interest cost on accumulated post-retirement benefit
obligation............................................. 5,822 7,635
Net amortization and deferral............................ (1,275) --
------- ------
Net periodic post-retirement benefit cost................ $ 4,919 $8,024
------- ------
------- ------
</TABLE>
For measurement purposes, in fiscal 1994 a 12% composite annual rate of
increase in the per capita cost of covered health care benefits was assumed,
which approximates the Company's current experience. The rate was assumed to
decrease gradually to 6% by the year 2008 and remains at that level thereafter.
The health care cost trend rate assumption may have a significant effect on the
amounts reported. To illustrate, increasing the assumed health care cost trend
rates by a percentage point would increase the accumulated post-retirement
benefit obligation as of June 30, 1994 by $6.3 million and the aggregate of the
service and interest cost component of net periodic post-retirement benefit cost
for the year then ended by $0.6 million. The weighted average discount rate used
in determining the accumulated post-retirement benefit obligation was 8.3% at
June 30, 1994 and 7.3% at June 30, 1993.
The incremental cost in fiscal 1993 of accounting for post-retirement health
and life insurance benefits under the new accounting method amounted to $2.3
million pre-tax. Under the previous accounting method, expense for benefits
aggregated $4.3 million pre-tax in fiscal 1992.
F-20
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
12. RETIREMENT PLANS--(CONTINUED)
Presented below are the components of the accrued post-retirement benefit
obligation, all of which are unfunded:
<TABLE><CAPTION>
JUNE 30
-------------------
1994 1993
------- --------
(IN THOUSANDS)
<S> <C> <C>
Accumulated post-retirement benefit obligation:
Retirees.............................................................. $46,347 $ 82,300
Fully eligible active plan participants............................... 10,986 14,926
Other active plan participants........................................ 5,905 7,692
------- --------
63,238 104,918
Unrecognized prior service benefit...................................... 25,648 --
Unrecognized net gain (loss)............................................ 10,715 (4,719)
------- --------
Accrued post-retirement benefit cost.................................... $99,601 $100,199
------- --------
------- --------
</TABLE>
In fiscal 1994 the Company amended certain of its post-retirement health
care programs, principally to adjust the cost-sharing provisions. The amendment
resulted in a reduction of the Company's accumulated post-retirement benefit
obligation of $27.8 million, which created an unrecognized prior service
benefit. The unrecognized prior service benefit is being amortized over
approximately 16 years.
In November 1992, the Financial Accounting Standards Board issued SFAS 112
"Employers' Accounting for Post-Employment Benefits." The Company is required to
adopt SFAS 112 in fiscal 1995. Adoption of this standard is not expected to have
a material effect on the Company's financial position or results of operations.
F-21
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
13. CONSOLIDATED SEGMENT DATA
Selected information by industry segment is presented below.
<TABLE><CAPTION>
YEAR ENDED JUNE 30
--------------------------------------
1994 1993 1992
---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Sales:
Fire Protection.............................. $1,525,906 $1,526,079 $1,615,723
Flow Control Products........................ 914,430 806,915 721,338
Electrical and Electronic Components......... 436,884 413,300 392,283
Disposable and Specialty Products............ 1,199,163 1,173,063 337,141
---------- ---------- ----------
$4,076,383 $3,919,357 $3,066,485
---------- ---------- ----------
---------- ---------- ----------
Income before income taxes, extraordinary item
and cumulative effect of accounting changes:
Fire Protection.............................. $ 70,171 $ 43,190(2) $ 85,189(4)
Flow Control Products........................ 74,125 44,638(2) 37,704(4)
Electrical and Electronic Components......... 72,510 68,401(2) 54,093
Disposable and Specialty Products............ 191,669 126,280(3) 43,432
---------- ---------- ----------
Income from operations......................... 408,475 282,509 220,418
Interest expense............................. (62,431) (85,785) (63,261)
Corporate and other amounts.................. (17,854)(1) (17,429)(2) (16,007)(4)
---------- ---------- ----------
$ 328,190 $ 179,295 $ 141,150
---------- ---------- ----------
---------- ---------- ----------
Total assets:
Fire Protection.............................. $1,135,128 $1,180,123 $1,337,690
Flow Control Products........................ 861,362 890,134 749,746
Electrical and Electronic Components......... 178,336 192,919 187,048
Disposable and Specialty Products............ 886,759 863,197 149,898
Corporate assets, including cash............. 79,236 38,593 27,155
---------- ---------- ----------
$3,140,821 $3,164,966 $2,451,537
---------- ---------- ----------
---------- ---------- ----------
Depreciation and amortization:
Fire Protection.............................. $ 29,513 $ 30,975 $ 37,612
Flow Control Products........................ 39,409 34,225 31,846
Electrical and Electronic Components......... 11,313 10,889 11,810
Disposable and Specialty Products............ 40,618 48,278 8,990
Corporate.................................... 4,027 3,982 4,350
---------- ---------- ----------
$ 124,880 $ 128,349 $ 94,608
---------- ---------- ----------
---------- ---------- ----------
Capital expenditures:
Fire Protection.............................. $ 17,445 $ 24,931 $ 22,582
Flow Control Products........................ 33,941 37,667 25,580
Electrical and Electronic Components......... 11,728 9,278 13,340
Disposable and Specialty Products............ 26,341 22,281 6,112
Corporate.................................... 347 242 36
---------- ---------- ----------
$ 89,802 $ 94,399 $ 67,650
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
- ------------
(1) Fiscal 1994 includes expense of $4.1 million related to the accounts
receivable program, which cost would have been reflected as interest expense
under previous financing arrangements. See Note 6.
(Footnotes continued on following page)
F-22
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
13. CONSOLIDATED SEGMENT DATA--(CONTINUED)
(Footnotes continued from preceding page)
(2) Fiscal 1993 includes restructuring and severance charges of $16.0 million,
$19.0 million, $0.7 million, and $3.6 million, for Fire Protection, Flow
Control Products, Electrical and Electronic Components and Corporate,
respectively. See Note 4.
(3) Fiscal 1993 includes a non-recurring inventory charge of $22.5 million
related to the asset valuation requirements of fresh-start reporting. See
Note 1.
(4) Fiscal 1992 includes restructuring and severance charges of $10.0 million,
$13.4 million and $2.2 million for Fire Protection, Flow Control Products
and Corporate, respectively. See Note 4.
14. CONSOLIDATED GEOGRAPHIC DATA
Selected information by geographic area for the three years in the period
ended June 30, 1994 are presented below. Fiscal 1993 income from operations
includes restructuring and severance charges of $20.9 million, $8.5 million and
$6.3 million for North America, Europe and Asia-Pacific, respectively. Fiscal
1992 income from operations includes restructuring and severance charges of
$14.4 million and $9.0 million for North America and Europe, respectively.
<TABLE><CAPTION>
YEAR ENDED JUNE 30
--------------------------------------
1994 1993 1992
---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Sales:
North America........................................ $3,011,678 $2,878,686 $2,102,299
Europe............................................... 705,240 714,536 651,118
Asia-Pacific......................................... 359,465 326,135 313,068
---------- ---------- ----------
$4,076,383 $3,919,357 $3,066,485
---------- ---------- ----------
---------- ---------- ----------
Income From Operations:
North America........................................ $ 362,764 $ 256,940 $ 173,111
Europe............................................... 34,519 24,620 34,108
Asia-Pacific......................................... 11,192 949 13,199
---------- ---------- ----------
$ 408,475 $ 282,509 $ 220,418
---------- ---------- ----------
---------- ---------- ----------
Total Assets:
North America........................................ $2,106,391 $2,232,463 $1,591,141
Europe............................................... 684,508 664,859 600,353
Asia-Pacific......................................... 270,686 229,051 232,888
Corporate assets, including cash..................... 79,236 38,593 27,155
---------- ---------- ----------
$3,140,821 $3,164,966 $2,451,537
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
15. SUPPLEMENTARY BALANCE SHEET INFORMATION
<TABLE><CAPTION>
JUNE 30
--------------------
1994 1993
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Inventories:
Purchased materials and manufactured parts............ $145,965 $128,510
Work in process....................................... 92,786 87,865
Finished goods........................................ 278,317 285,963
-------- --------
$517,068 $502,338
-------- --------
-------- --------
Accrued salaries and vacations........................ $ 57,246 $ 55,328
-------- --------
-------- --------
</TABLE>
F-23
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
16. SUPPLEMENTARY INCOME STATEMENT INFORMATION
<TABLE><CAPTION>
YEAR ENDED JUNE 30
-----------------------------
1994 1993 1992
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Maintenance and repairs....................... $71,498 $71,388 $52,017
------- ------- -------
------- ------- -------
Research and development...................... $32,170 $30,268 $15,805
------- ------- -------
------- ------- -------
</TABLE>
17. SUMMARIZED QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE><CAPTION>
FOR THE YEAR ENDED JUNE 30, 1994(1)
------------------------------------------------
1ST 2ND 3RD 4TH
-------- -------- ---------- ----------
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Net sales..................................... $999,598 $998,073 $1,003,730 $1,074,982
-------- -------- ---------- ----------
-------- -------- ---------- ----------
Gross profit.................................. $259,133 $259,687 $ 260,327 $ 294,042
-------- -------- ---------- ----------
-------- -------- ---------- ----------
Net income.................................... $ 42,068 $ 43,402 $ 49,516 $ 54,205
-------- -------- ---------- ----------
-------- -------- ---------- ----------
Net Income Per Share.......................... $ .57 $ .59 $ .67 $ .73
-------- -------- ---------- ----------
-------- -------- ---------- ----------
<CAPTION>
FOR THE YEAR ENDED JUNE 30, 1993(1)
------------------------------------------------
1ST(1)(3) 2ND(1) 3RD(1) 4TH(2)
---------- -------- -------- ----------
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Net sales..................................... $1,009,195 $958,018 $946,387 $1,005,757
---------- -------- -------- ----------
---------- -------- -------- ----------
Gross profit.................................. $ 257,289 $245,973 $245,050 $ 261,098
---------- -------- -------- ----------
---------- -------- -------- ----------
Income Before Extraordinary Item and
Cumulative Effect of Accounting Changes..... $ 17,308 $ 31,359 $ 36,468 $ 9,323
---------- -------- -------- ----------
---------- -------- -------- ----------
Income Per Share Before Extraordinary Item and
Cumulative Effect of Accounting Changes..... $ .24 $ .43 $ .50 $ .13
---------- -------- -------- ----------
---------- -------- -------- ----------
Net Income Per Share.......................... $ (.75) $ .43 $ .50 $ .09
---------- -------- -------- ----------
---------- -------- -------- ----------
</TABLE>
Income per share amounts are calculated independently for each of the
quarters presented. The sum of the quarters may not equal the full year earnings
per share amounts.
- ------------
(1) During the fourth quarter of fiscal 1993, the Company changed its method of
accounting for income taxes and post-retirement benefits other than
pensions, effective as of July 1, 1992 (the Company's first quarter). The
results presented for the first three quarters of fiscal 1993 have been
restated for the impact of the new accounting methods. The impact on income
per share before extraordinary item and cumulative effect of accounting
changes for the first three quarters was not material.
(2) Included in the fourth quarter of fiscal 1993 are after-tax restructuring
and severance charges of $27.3 million and a special pension charge of $1.2
million.
(3) Included in the first quarter of fiscal 1993 is an after-tax non-recurring
inventory charge of $22.5 million.
F-24
<PAGE>
CONSOLIDATED BALANCE SHEET
<TABLE><CAPTION>
(UNAUDITED)
DECEMBER 31, 1994 JUNE 30, 1994
----------------- -------------
(IN THOUSANDS EXCEPT SHARE DATA)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents..................................... $ 56,781 $ 75,843
Receivables, less allowance for doubtful accounts of $31,209
in fiscal 1995 and $29,311 in fiscal 1994................... 511,224 515,160
Contracts in process.......................................... 90,839 79,475
Inventories................................................... 544,254 517,068
Deferred income taxes......................................... 115,266 101,837
Prepaid expenses and other.................................... 53,442 54,904
----------------- -------------
1,371,806 1,344,287
----------------- -------------
PROPERTY AND EQUIPMENT:
Land.......................................................... 33,203 33,235
Buildings..................................................... 267,794 257,485
Machinery and equipment....................................... 699,681 647,058
Leasehold improvements........................................ 16,374 15,166
Construction in progress...................................... 73,019 42,648
Accumulated depreciation...................................... (456,987) (385,719)
----------------- -------------
633,084 609,873
----------------- -------------
GOODWILL AND OTHER INTANGIBLE ASSETS.......................... 932,638 918,791
REORGANIZATION VALUE IN EXCESS OF IDENTIFIABLE ASSETS......... 112,271 115,201
DEFERRED INCOME TAXES......................................... 95,151 112,691
OTHER ASSETS.................................................. 41,519 39,978
----------------- -------------
TOTAL ASSETS.................................................. $ 3,186,469 $ 3,140,821
----------------- -------------
----------------- -------------
CURRENT LIABILITIES:
Loans payable and current maturities of long-term debt........ $ 104,655 $ 163,164
Accounts payable.............................................. 324,258 332,004
Accrued expenses.............................................. 390,537 382,576
Contracts in process--billings in excess of costs............. 76,977 63,324
Income taxes.................................................. 78,505 73,301
----------------- -------------
974,932 1,014,369
----------------- -------------
DEFERRED INCOME TAXES......................................... 7,986 13,698
LONG-TERM DEBT................................................ 563,467 588,491
OTHER LIABILITIES............................................. 153,251 157,237
COMMITMENTS AND CONTINGENCIES.................................
SHAREHOLDERS' EQUITY:
Preferred stock, $1 par value, authorized 2,000,000 shares;
none outstanding............................................ -- --
Common stock, $.50 par value, authorized 180,000,000 shares;
outstanding 73,901,064 shares in fiscal 1995 and 71,084,293
shares in fiscal 1994, net of reacquired shares of 7,594,427
in fiscal 1995 and 7,600,747 in fiscal 1994................. 36,951 35,542
Capital in excess of par value, net of deferred compensation
of $25,367 in fiscal 1995 and $9,318 in fiscal 1994......... 603,378 567,476
Currency translation adjustment............................... (23,819) (40,874)
Retained earnings............................................. 870,323 804,882
----------------- -------------
1,486,833 1,367,026
----------------- -------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY.................... $ 3,186,469 $ 3,140,821
----------------- -------------
----------------- -------------
</TABLE>
See notes to unaudited consolidated financial statements.
F-25
<PAGE>
CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
<TABLE><CAPTION>
FOR THE SIX MONTHS ENDED
DECEMBER 31
------------------------
1994 1993
---------- ----------
(IN THOUSANDS EXCEPT PER
SHARE DATA)
<S> <C> <C>
SALES.............................................................. $2,151,895 $1,997,671
---------- ----------
COSTS AND EXPENSES:
Cost of sales...................................................... 1,572,626 1,478,851
Selling, general and administrative................................ 354,111 336,163
Merger and transaction related costs............................... 37,170 --
Interest........................................................... 31,703 33,320
---------- ----------
1,995,610 1,848,334
---------- ----------
Income before income taxes and extraordinary item.................. 156,285 149,337
Income taxes....................................................... (76,276) (63,867)
---------- ----------
Income before extraordinary item................................... 80,009 85,470
Extraordinary item, net of tax benefit............................. (2,600) --
---------- ----------
NET INCOME......................................................... $ 77,409 $ 85,470
---------- ----------
---------- ----------
INCOME PER SHARE:
Before extraordinary item.......................................... $ 1.07 $ 1.16
Extraordinary item................................................. (.03) --
---------- ----------
NET INCOME......................................................... $ 1.04 $ 1.16
---------- ----------
---------- ----------
CASH DIVIDENDS PER COMMON SHARE.................................... $ .20 $ .20
---------- ----------
---------- ----------
COMMON EQUIVALENT SHARES........................................... 74,732 73,624
---------- ----------
---------- ----------
</TABLE>
See notes to unaudited consolidated financial statements.
F-26
<PAGE>
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (UNAUDITED)
<TABLE><CAPTION>
FOR THE SIX MONTHS ENDED DECEMBER 31, 1994 AND 1993
-------------------------------------------------------
CAPITAL IN CURRENCY
COMMON STOCK, EXCESS OF TRANSLATION RETAINED
$.50 PAR VALUE PAR VALUE ADJUSTMENT EARNINGS
-------------- ---------- ----------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
BALANCE AT JUNE 30, 1993...................... $ 35,462 $ 558,481 $ (89,386) $634,229
Net income.................................... 85,470
Dividends..................................... (9,269)
Management equity compensation................ 809
Restricted stock grants, cancellations, tax
benefits and other.......................... 16 1,294
Warrants, options exercised................... 319
Currency translation adjustment............... (2,939)
Amortization of deferred compensation......... 1,810
-------------- ---------- ----------- --------
BALANCE AT DECEMBER 31, 1993.................. $ 35,478 $ 562,713 $ (92,325) $710,430
-------------- ---------- ----------- --------
-------------- ---------- ----------- --------
BALANCE AT JUNE 30, 1994...................... $ 35,542 $ 567,476 $ (40,874) $804,882
Net income.................................... 77,409
Dividends..................................... (11,968)
Management equity compensation................ 404
Restricted stock grants, cancellations, tax
benefits and other.......................... 174 255
Warrants, options exercised................... 1,235 33,392
Currency translation adjustment............... 17,055
Amortization of deferred compensation......... 1,851
-------------- ---------- ----------- --------
BALANCE AT DECEMBER 31, 1994.................. $ 36,951 $ 603,378 $ (23,819) $870,323
-------------- ---------- ----------- --------
-------------- ---------- ----------- --------
</TABLE>
See notes to unaudited consolidated financial statements.
F-27
<PAGE>
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
<TABLE><CAPTION>
FOR THE SIX MONTHS
ENDED
DECEMBER 31,
----------------------
1994 1993
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income........................................................... $ 77,409 $ 85,470
Adjustments to reconcile net income to net cash provided by operating
activities:
Extraordinary item................................................. 2,600 --
Depreciation....................................................... 43,721 40,900
Amortization of intangibles........................................ 20,498 21,903
Provision for management equity plans.............................. -- 7,195
Deferred income taxes.............................................. (1,426) 22,390
Provision for losses on accounts receivable and inventory
writedowns....................................................... 6,845 7,328
Changes in assets and liabilities net of effects from acquisitions
and divestitures:
Decrease in accounts receivable and contracts in process......... 15,280 182,950
Increase in inventory............................................ (23,966) (15,575)
Decrease in accounts payable and accrued expenses................ (25,203) (46,663)
Increase in income taxes payable................................. 6,492 323
Other............................................................ 5,753 3,024
--------- ---------
Net cash provided by operating activities.......................... 128,003 309,245
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures................................................. (64,292) (41,754)
Purchase of businesses, net of cash acquired......................... (23,601) (15,015)
--------- ---------
Net cash used in investing activities.............................. (87,893) (56,769)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt......................................... 144,889 --
Payments on long-term debt and lines of credit....................... (229,430) (251,092)
Dividends paid....................................................... (9,258) (9,262)
Exercise of stock options and warrants............................... 34,627 319
Other................................................................ -- (344)
--------- ---------
Net cash used in financing activities.............................. (59,172) (260,379)
--------- ---------
Decrease in cash and cash equivalents................................ (19,062) (7,903)
Cash and cash equivalents at beginning of year....................... 75,843 50,041
--------- ---------
Cash and cash equivalents at end of period........................... $ 56,781 $ 42,138
--------- ---------
--------- ---------
SUPPLEMENTARY CASH FLOW DISCLOSURE:
Interest paid...................................................... $ 33,636 $ 36,058
--------- ---------
--------- ---------
Income taxes paid.................................................. $ 56,234 $ 35,603
--------- ---------
--------- ---------
</TABLE>
See notes to unaudited consolidated financial statements.
F-28
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. On October 19, 1994, a wholly-owned subsidiary of Tyco merged with
Kendall International, Inc. ("Kendall"). Shareholders of Kendall received
1.29485 shares of Tyco common stock for each share of Kendall common stock. The
transaction qualified for pooling of interests accounting treatment, which is
intended to present as a single interest the common shareholder interests which
were previously independent. Accordingly, the historical financial statements
for periods prior to the consummation of the combination are restated as though
the companies had been combined during such periods. All fees and expenses
related to the merger and to the integration of the combined companies have been
expensed as required under the pooling of interests accounting method. Such fees
and expenses amounted to $37.2 million ($31.2 million after-tax). The charge
includes $18.6 million for financial advisory, legal, accounting and other
direct transaction fees, $14.9 million for payments under severance and
employment agreements and other costs associated with certain compensation
plans, and $3.7 million for other acquisition and integration costs.
2. The unaudited financial statements presented herein have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Article 10 of Regulation
S-X as promulgated by the Securities and Exchange Commission. Accordingly, said
financial statements do not include all of the information and note disclosures
required by generally accepted accounting principles for complete financial
statements. These statements should be read in conjunction with the financial
statements and notes thereto for the year ended June 30, 1994 included in the
Company's Current Report on Form 8-K dated January 10, 1995 and elsewhere in
this Prospectus. The accompanying financial statements have not been examined by
independent accountants in accordance with generally accepted auditing
standards, but in the opinion of management such financial statements include
all adjustments, consisting only of normal recurring adjustments, necessary to
summarize fairly the Company's financial position and results of operations.
3. Long-term debt is as follows:
<TABLE><CAPTION>
DECEMBER 31, 1994 JUNE 30, 1994
----------------- -------------
<S> <C> <C>
(IN THOUSANDS)
Credit agreement.............................. $-- $ 94,447
Uncommitted lines of credit................... -- 22,000
Insurance company notes....................... 135,000 135,000
8.25% subordinated notes due 2003............. -- 100,000
8.125% public notes due 1999.................. 144,889 --
6.375% public debentures due 2004............. 104,262 104,644
9.5% public debentures due 2022............... 199,568 199,559
8.0% public debentures due 2023............... 49,958 49,957
Other, including industrial revenue bonds..... 34,445 46,048
----------------- -------------
668,122 751,655
Less current portion and loans payable........ 104,655 163,164
----------------- -------------
$ 563,467 $ 588,491
----------------- -------------
----------------- -------------
</TABLE>
Under Tyco's credit agreement with a group of commercial banks, Tyco had the
right until July 1997 to borrow $200 million or a portion thereof for its
general corporate purposes. Kendall also had a $300 million revolving credit
facility which was available through July 1999. In October 1994, the Company
replaced those agreements with a new credit agreement which gives the Company
the right to borrow $300 million or a portion thereof until October 1999. The
principal amount then outstanding will be due and payable at that time. Interest
payable on borrowings is variable based upon the
F-29
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--(CONTINUED)
Company's option of selecting a Eurodollar rate plus 0.325%, a certificate of
deposit rate plus 0.45% or a base rate, as defined.
The Company's uncommitted lines of credit are arrangements which allow the
Company to borrow from commercial banks on an "as offered" basis. The borrowings
and repayments occur daily and contain no specific terms other than due dates
and interest rates. The due dates generally range from overnight to 90 days and
interest rates approximate those available under the credit agreement.
In November 1994, the Company issued $145 million principal amount of 8.125%
notes due 1999. The net proceeds from the sale of notes were used, in part, to
refinance $100 million principal amount of Kendall's subordinated notes due
2003. The balance was used to refinance, in part, the $80 million of insurance
company notes that were due on January 30, 1995. In the interim, the proceeds
were used to repay outstanding borrowings under various uncommitted lines of
credit.
In connection with the refinancing of Kendall's notes, the Company recorded
a charge of $4.3 million ($2.6 million after-tax) representing unamortized debt
issuance fees and a call premium, as an extraordinary loss for the Company's
quarter ended December 31, 1994.
Under its various loan agreements, the Company is required to meet certain
covenants, none of which is considered restrictive to the operations of the
Company.
4. The Company has an agreement under which it sells participating interests
in a defined pool of trade accounts receivable. Proceeds of $150 million from
the sale are less than the face amount of accounts receivable sold by an amount
which approximates the purchaser's financing cost of issuing its own commercial
paper backed by these accounts receivable. The discount from the face amount was
$3.6 million and $1.3 million for the first six months of fiscal 1995 and 1994,
respectively, and has been included in selling, general and administrative
expense in the Company's Consolidated Statement of Income.
5. Selected information for the Company's four industry segments follows (in
thousands):
<TABLE><CAPTION>
SIX MONTHS ENDED
DECEMBER 31,
------------------------
1994 1993
---------- ----------
<S> <C> <C>
SALES:
Fire Protection................................... $ 801,944 $ 763,999
Flow Control Products............................. 480,974 431,789
Electrical and Electronic Components.............. 205,638 214,578
Disposable and Specialty Products................. 663,339 587,305
---------- ----------
$2,151,895 $1,997,671
---------- ----------
---------- ----------
INCOME BEFORE INCOME TAXES AND EXTRAORDINARY ITEM:
Fire Protection................................... $ 39,198 $ 34,269
Flow Control Products............................. 39,511 33,936
Electrical and Electronic Components.............. 36,595 36,094
Disposable and Specialty Products................. 121,400 86,287
---------- ----------
Total operations................................ 236,704 190,586
Interest expense.................................. (31,703) (33,320)
Corporate and other amounts(1).................... (48,716) (7,929)
---------- ----------
$ 156,285 $ 149,337
---------- ----------
---------- ----------
</TABLE>
- ------------
(1) The six months ended December 31, 1994 includes charges of $37.2 million for
merger and transaction related costs. See Note 1 to these unaudited
consolidated financial statements.
F-30
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--(CONTINUED)
6. Differences between the provision for federal income taxes at the
statutory rate and the amounts provided are as follows (in thousands):
<TABLE><CAPTION>
SIX MONTHS ENDED
DECEMBER 31,
------------------
1994 1993
------- -------
<S> <C> <C>
Provision at statutory rate............................. $54,700 $52,268
State income taxes...................................... 7,446 5,424
Non-deductible merger and transaction related costs..... 7,009 --
Depreciation and amortization under purchase
accounting............................................ 5,705 5,606
Foreign earnings taxed at different rates............... 1,942 2,687
Effect of rate changes.................................. -- (3,224)
Other................................................... (526) 1,106
------- -------
Provision for income taxes.............................. $76,276 $63,867
------- -------
------- -------
</TABLE>
In the normal course, the Company's federal income tax returns are examined
by the Internal Revenue Service and in connection with such examinations,
significant assessments could arise. Currently, the Company's fiscal 1991 and
1992 returns are under examination. Ultimate resolution of such assessments, if
any, are not expected to have a material adverse effect on the Company's
financial position or results of operations.
7. Inventories are classified as follows (in thousands):
<TABLE><CAPTION>
DECEMBER 31, 1994 JUNE 30, 1994
----------------- -------------
<S> <C> <C>
Purchased materials and manufactured parts.... $ 160,132 $ 145,965
Work in process............................... 99,883 92,786
Finished goods................................ 284,239 278,317
----------------- -------------
$ 544,254 $ 517,068
----------------- -------------
----------------- -------------
</TABLE>
8. In November 1992, the Financial Accounting Standards (the "Board") issued
Statement of Financial Accounting Standards ("SFAS") No. 112, "Employer's
Accounting for Post-Employment Benefits." The Company adopted SFAS 112 in the
first quarter of fiscal 1995. The effect of adoption of this standard did not
materially affect the Company's financial position or results of operations. In
May 1993, the Board issued SFAS 114, "Accounting by Creditors for Impairment of
a Loan." This new standard must be adopted no later than fiscal 1996. Adoption
of this standard is not expected to have a material effect on the Company's
financial position or results of operations.
9. In the normal course of business, the Company is liable for contract
completion and product performance. In addition, the Company is in receipt of
notifications from various environmental agencies that conditions at a number of
sites where hazardous wastes of the Company and other persons were disposed of
may require cleanup and other possible remedial action. In the opinion of
management, these obligations will not materially affect the Company's financial
position or results of operations.
F-31
<PAGE>
- ------------------------------------------- ------------------------------------
- ------------------------------------------- ------------------------------------
NO DEALER, SALESPERSON OR OTHER
INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS
OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE 7,778,701 SHARES
RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY, THE SELLING SHAREHOLDERS
OR ANY UNDERWRITER, DEALER OR AGENT.
THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER TO SELL, OR THE SOLICITATION OF
ANY OFFER TO BUY, THE COMMON STOCK TO ANY TYCO INTERNATIONAL LTD.
PERSON IN ANY JURISDICTION WHERE, OR IN
ANY CIRCUMSTANCE IN WHICH, SUCH OFFER OR
SOLICITATION MAY NOT BE LEGALLY MADE. COMMON STOCK
NEITHER THE DELIVERY OF THIS PROSPECTUS
NOR ANY SALE MADE HEREUNDER SHALL, UNDER
ANY CIRCUMSTANCES, CREATE AN IMPLICATION
THAT THERE HAS NOT BEEN ANY CHANGE IN
THE AFFAIRS OF THE COMPANY OR THE
INFORMATION SET FORTH IN THE
PROSPECTUS SINCE THE DATE HEREOF.
------------------ ------------------
PROSPECTUS
------------------
TABLE OF CONTENTS
PROSPECTUS
PAGE
----
Available Information................. 3 MERRILL LYNCH & CO.
Incorporation of Certain Information
by Reference........................ 3
Prospectus Summary.................... 4 GOLDMAN, SACHS & CO.
The Offerings......................... 4
Summary Consolidated Financial Data... 5 DONALDSON, LUFKIN & JENRETTE
The Company........................... 7 SECURITIES CORPORATION
Use of Proceeds....................... 16
Price Range of Common Stock and LEHMAN BROTHERS
Dividends........................... 16
Capitalization........................ 17
Selected Consolidated Financial
Data................................ 18
Management's Discussion and Analysis
of Financial Condition and Operating
Results............................. 19
Selling Shareholders.................. 25 FEBRUARY 23, 1995
Description of Capital Stock.......... 30
Underwriting.......................... 35
Validity of Shares.................... 37
Experts............................... 37
Consolidated Financial Statements..... F-1
- ------------------------------------------- -----------------------------------
- ------------------------------------------- -----------------------------------
<PAGE>
ALTERNATE INTERNATIONAL
FILED PURSUANT TO RULE 424(b)(1)
PROMULGATED UNDER THE SECURITIES ACT OF 1933
FILE NO. 33-57509
PROSPECTUS
7,778,701 SHARES
TYCO INTERNATIONAL LTD.
COMMON STOCK
-------------------
Of the 7,778,701 shares of Common Stock being offered, 1,552,404 shares are
being offered initially outside the United States and Canada by the
International Managers and 6,226,297 shares are being offered initially in the
United States and Canada by the U.S. Underwriters. See "Selling Shareholders"
and "Underwriting."
Of the 7,778,701 shares of Common Stock being offered, 7,586,203 shares are
being sold by certain Selling Shareholders of the Company, 147,930 shares are
being sold upon the exercise of Warrants and 44,568 shares are being sold upon
the exercise of Reallocation Rights. In connection with the Offerings, certain
Selling Shareholders will sell to the Underwriters their Warrants and
Reallocation Rights, and the Underwriters will exercise such Warrants and
Reallocation Rights in order that the underlying shares of Common Stock may be
sold in the Offerings. See "Description of Capital Stock." The Company will not
receive any of the proceeds from the sale of the shares offered hereby or from
the exercise of the Reallocation Rights, although it will receive $11.94 per
share (or an aggregate of $852,397) in connection with the exercise of A
Warrants and $15.92 per share (or an aggregate of $1,218,517) in connection with
the exercise of B Warrants. See "Use of Proceeds."
The Common Stock is traded on the New York Stock Exchange under the symbol
"TYC." On February 23, 1995, the last reported sale price of the Common Stock,
as reported on the New York Stock Exchange, was $50 5/8 per share.
-------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
<TABLE><CAPTION>
PROCEEDS TO
PRICE TO UNDERWRITING SELLING
PUBLIC DISCOUNT(1) SHAREHOLDERS(2)
<S> <C> <C> <C>
Per Share........................... $50.625 $1.52 $49.105
Total(4)............................ $393,796,738 $11,823,626 $379,370,056(3)
</TABLE>
(1) The Company and the Selling Shareholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933. See "Underwriting."
(2) The Company has agreed to pay expenses related to the Offerings, estimated
at $697,855.
(3) Does not include $852,397 ($11.94 per share) to be paid to the Company by
the Underwriters upon exercise of A Warrants to be purchased by the
Underwriters from certain of the Selling Shareholders and $1,218,517 ($15.92
per share) to be paid to the Company by the Underwriters upon exercise of B
Warrants to be purchased by the Underwriters from certain of the Selling
Shareholders. Also does not include $532,142 in respect of the exercise
price of the Reallocation Rights, a portion of which is payable to certain
Selling Shareholders.
(4) Certain of the Selling Shareholders have granted the International Managers
and the U.S. Underwriters options, exercisable within 30 days after the date
hereof, to purchase 152,065 and 609,927 additional shares of Common Stock,
respectively, to cover over-allotments, if any. If such options are
exercised in full, the total Price to Public, Underwriting Discount and
Proceeds to Selling Shareholders will be $432,372,583, $12,981,853 and
$416,787,674, respectively. See "Underwriting."
-------------------
The shares of Common Stock are offered by the several Underwriters subject
to prior sale, when, as and if issued to and accepted by them, subject to
approval of certain legal matters by counsel for the Underwriters and certain
other conditions. The Underwriters reserve the right to withdraw, cancel or
modify such offer and to reject orders in whole or in part. It is expected that
delivery of the shares will be made in New York, New York, on or about March 2,
1995.
-------------------
MERRILL LYNCH INTERNATIONAL LIMITED
GOLDMAN SACHS INTERNATIONAL
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
LEHMAN BROTHERS
-------------------
THE DATE OF THIS PROSPECTUS IS FEBRUARY 23, 1995.
<PAGE>
ALTERNATE INTERNATIONAL
CERTAIN UNITED STATES TAX CONSEQUENCES
TO NON-U.S. HOLDERS OF COMMON STOCK
GENERAL
The following is a general discussion of certain anticipated United States
federal income tax consequences of the ownership and disposition of Common Stock
by a person that, for United States federal income tax purposes, is not a
"United States Person" (a "Non-U.S. Holder"). For these purposes, a "United
States Person" means a citizen or resident of the United States, a corporation,
a partnership or other entity created or organized in or under the laws of the
United States or any state thereof, or an estate or trust, the income of which
is subject to United States federal income taxation regardless of its source.
The following discussion does not consider specific facts and circumstances
that may be relevant to a particular Non-U.S. Holder's tax position, including
the benefits that may be available to any person under an applicable tax treaty
to which the United States is a party. Specifically, without limitation, this
discussion does not address the United States tax consequences to any Non-U.S.
Holder who at any time owns (directly or through attribution) more than 5% of
the Common Stock or to any Non-U.S. Holder that is a controlled foreign
corporation, a foreign personal holding company, a foreign private foundation, a
foreign government, or a U.S. expatriate. Furthermore, the following discussion
is based on current provisions of the U.S. Internal Revenue Code of 1986, as
amended (the "Code"), and on administrative and judicial pronouncements
thereunder, all of which are subject to change. Each Non-U.S. Holder is urged to
consult a tax advisor with respect to the United States tax consequences of
acquiring, holding and disposing of Common Stock, as well as any tax
consequences that may arise under the laws of any foreign, state, local or other
tax jurisdiction.
DIVIDENDS
Dividends paid on shares of Common Stock will be treated as dividends for
United States federal income tax purposes to the extent of the Company's current
or accumulated earnings and profits (as determined pursuant to the Code). Any
portion of a payment that exceeds such earnings and profits will be treated as a
return of capital to the extent of each Non-U.S. Holder's adjusted tax basis in
his or her Common Stock. Any portion of a payment that exceeds the sum of a
stockholder's proportionate share of earnings and profits and his or her
adjusted tax basis will be treated as a gain from the sale or exchange of his or
her Common Stock to the extent of any such excess, with the consequences
described below under "Gain on Disposition of Common Stock."
Each Non-U.S. Holder who receives a payment treated as a dividend for United
States federal income tax purposes (including, for this purpose, payments
representing a return of capital or gain) will be subject to withholding of
United States federal income tax at a rate of 30% of such payment unless either
(i) such holder is eligible for a reduced tax rate or a tax exemption under an
applicable income tax treaty or (ii) such holder is engaged in the conduct of a
trade or business within the United States and the dividend is effectively
connected with that trade or business. If the dividend is effectively connected
with the conduct of a trade or business within the United States by a Non-U.S.
Holder, the dividend (as adjusted by any applicable deductions) will be subject
to United States federal income tax at regular rates generally applicable to
United States Persons. Any such effectively connected dividends received by a
corporate Non-U.S. Holder may, under certain circumstances, be subject to an
additional "branch profits tax" at a 30% rate or such lower rate as may be
specified by an applicable income tax treaty. Certain certification requirements
may have to be satisfied to claim treaty benefits or exemption from withholding
under the foregoing rules. A Non-U. S. Holder of Common Stock that is eligible
for a reduced rate of U.S. federal withholding tax pursuant to a tax treaty may
obtain a refund of any excess amounts currently withheld by filing an
appropriate claim for refund with the U.S. Internal Revenue Service. Non-U.S.
Holders that are partnerships or trusts may be subject to certain additional
withholding requirements and are urged to consult their tax advisors as to the
application of such requirements.
GAIN ON DISPOSITION OF COMMON STOCK
Except as described below, a Non-U.S. Holder will generally not be subject
to United States federal income tax (and no tax will generally be withheld) with
respect to gain recognized on a sale or other disposition of the Common Stock
unless (i) the gain is effectively connected with a trade or business conducted
by the Non-U.S. Holder in the United States (and, if an applicable tax treaty so
provides, is attributable to a United States permanent establishment of such
holder), (ii) the Company is, or has been during the five year period ending on
the date of disposition, a United States real property holding corporation for
United States federal income tax purposes (a "USRPHC"), or (iii) in the case of
an individual Non-U.S. Holder who holds the Common Stock as a capital asset,
such holder is present in the United States for 183 days or more in the taxable
year of the disposition and either (a) has a tax home in the United States
within the meaning of Section 911(d)(3) of the Code or (b) the gain is
attributable to an office or other fixed place of business maintained by such
holder in the United States.
With respect to (i) if the gain is effectively connected with the conduct of
a trade or business within the United States by the Non-U.S. holder (and, if an
applicable tax treaty so provides, is attributable to
35
<PAGE>
ALTERNATE INTERNATIONAL
a United States permanent establishment of such holder), the gain as adjusted by
any applicable deductions will be subject to United States federal income tax at
rates generally applicable to United States Persons (and may, in the case of a
corporate Non-U.S. Holder, also be subject to "branch profits tax"). With
respect to (ii), the Company believes that it has not been and is not currently
a USRPHC and does not anticipate becoming a USRPHC. Notwithstanding the
foregoing, even if the Company were treated as a USRPHC, the Common Stock would
not be treated as an interest in a USRPHC if (a) a Non-U.S. Holder has not owned
(directly or through attribution) more than 5% of the Common Stock for the five
year period ending on the date of disposition, and (b) the Common Stock is
regularly traded on an established securities exchange. An individual Non-U.S.
Holder to whom (iii) applies will generally be taxed at a rate of 30% on any
gain recognized during any year on the sale of Common Stock (as offset by U.S.
capital losses, if any).
FEDERAL ESTATE TAXES
Common Stock held by an individual Non-U.S. Holder at the date of his or her
death will be included in his or her gross estate for United States federal
estate tax purposes, unless an applicable estate tax treaty provides otherwise.
UNITED STATES INFORMATION REPORTING REQUIREMENTS AND BACKUP WITHHOLDING TAX
The Company must report annually to the Internal Revenue Service the total
amount of United States federal income taxes withheld from dividends paid to
Non-U.S. Holders. In addition, the Company must report annually to the Internal
Revenue Service and each Non-U.S. Holder the amount of dividends and other
payments distributed to and the tax withheld with respect to such holder. These
information reporting requirements apply regardless of whether withholding is
reduced or eliminated by an applicable treaty or is not required because the
dividends are effectively connected with a U.S. trade or business of a Non-U.S.
Holder. Under certain treaties, the Internal Revenue Service may make this
information available to the tax authorities in the country of a Non-U.S.
Holder's residence.
Backup withholding tax (which generally is a withholding tax imposed at the
rate of 31% on certain payments to persons that are not "exempt recipients" and
that fail to furnish certain information under United States information
reporting requirements) and information reporting relating thereto generally
will not apply to dividends and other payments paid to Non-U.S. Holders that are
either (i) subject to the 30% withholding discussed above or (ii) not so subject
because a tax treaty applies that reduces or eliminates such withholding. In
addition, under current temporary United States Treasury regulations, dividends
payable at an address located outside of the United States to a Non-U.S. Holder
are generally not subject to the backup withholding and information reporting
rules. These backup withholding requirements and information reporting rules
will apply to the gross proceeds paid by or through a United States office of a
broker to a Non-U.S. Holder upon the disposition of shares of Common Stock,
unless the Non-U.S. Holder certifies under penalty of perjury that it is a
foreign person or the Non-U.S. Holder otherwise establishes an exemption. Under
existing regulations, information reporting and backup withholding will also
apply to the payment of gross proceeds of a sale or other disposition of Common
Stock by or through a foreign office of a broker with certain United States
connections, unless the broker has documentary evidence that the holder is a
Non-U.S. Holder and the broker has no actual knowledge to the contrary. Proposed
regulations generally provide that backup withholding will not apply to
reportable payments where the payee may have a United States connection, unless
the broker has actual knowledge that the payee is United States Person. Any
amounts withheld under the backup withholding rules from a payment to a Non-U.S.
Holder will be refunded (or credited against the Non-U.S. Holder's United States
federal income tax liability, if any), provided that the required information is
furnished to the Internal Revenue Service. These backup withholding and
information reporting requirements are under review by the United States
Treasury Department. Their application to the ownership and disposition of
shares of Common Stock could be changed by future regulations.
36
<PAGE>
ALTERNATE INTERNATIONAL
UNDERWRITING
Subject to the terms and conditions set forth in an international purchase
agreement (the "International Purchase Agreement") among the Company, the
Selling Shareholders and each of the underwriters named below (the
"International Managers") and concurrently with the sale of 6,226,297 shares of
Common Stock to the U.S. Underwriters (as defined below), the Selling
Shareholders severally have agreed to sell to the International Managers, and
each of the International Managers severally has agreed to purchase from the
Selling Shareholders, the aggregate number of shares of Common Stock (or
Warrants or Reallocation Rights to acquire such shares of Common Stock) set
forth opposite its name below:
<TABLE><CAPTION>
NUMBER OF
INTERNATIONAL MANAGERS SHARES
- ------------------------------------------------------------------------- ---------
<S> <C>
Merrill Lynch International Limited...................................... 330,432
Goldman Sachs International.............................................. 330,429
Donaldson, Lufkin & Jenrette Securities Corporation...................... 330,429
Lehman Brothers International (Europe)................................... 330,429
Commerzbank Aktiengesellschaft........................................... 46,137
Credit Lyonnais Securities............................................... 46,137
Dresdner Bank Aktiengesellschaft......................................... 46,137
Nikko Europe Plc......................................................... 46,137
S.G. Warburg Securities Ltd.............................................. 46,137
---------
Total........................................................... 1,552,404
---------
---------
</TABLE>
Merrill Lynch International Limited, Goldman Sachs International, Donaldson,
Lufkin & Jenrette Securities Corporation and Lehman Brothers International
(Europe) are acting as lead managers (the "Lead Managers") of the International
Managers.
The Company and the Selling Shareholders have also entered into a purchase
agreement (the "U.S. Purchase Agreement" and, together with the International
Purchase Agreement, the "Purchase Agreements") with certain underwriters in the
United States and Canada (the "U.S. Underwriters" and, together with the
International Managers, the "Underwriters") for whom Merrill Lynch, Pierce,
Fenner & Smith Incorporated, Goldman, Sachs & Co., Donaldson, Lufkin & Jenrette
Securities Corporation and Lehman Brothers Inc. are acting as U.S.
Representatives. Subject to the terms and conditions set forth in the U.S.
Purchase Agreement, and concurrently with the sale of 1,552,404 shares of Common
Stock (or Warrants or Reallocation Rights to acquire such shares of Common
Stock) to the International Managers pursuant to the International Purchase
Agreement, the Selling Shareholders severally have agreed to sell to the U.S.
Underwriters, and the U.S. Underwriters severally have agreed to purchase from
the Selling Shareholders, an aggregate of 6,226,297 shares of Common Stock (or
Warrants or Reallocation Rights to acquire such shares of Common Stock). The
initial public offering price per share and the total underwriting discount per
share are identical under the International Purchase Agreement and the U.S.
Purchase Agreement.
In each Purchase Agreement, the several International Managers and the
several U.S. Underwriters, respectively, have agreed, subject to the terms and
conditions set forth in such Purchase Agreement, to purchase all of the shares
of Common Stock (or Warrants or Reallocation Rights to acquire such shares of
Common Stock) being sold pursuant to such Purchase Agreement if any such shares
of Common Stock (or Warrants or Reallocation Rights to acquire such shares of
Common Stock) being sold pursuant to such Purchase Agreement are purchased.
Under certain circumstances, the commitments of non-defaulting International
Managers or U.S. Underwriters (as the case may be) may be increased. The sale of
Common Stock (or Warrants or Reallocation Rights to acquire such shares of
Common Stock) to the International Managers is conditioned upon the sale of the
shares of Common Stock (or Warrants or Reallocation Rights to acquire such
shares of Common Stock) to the U.S. Underwriters.
The Lead Managers have advised the Selling Shareholders that the
International Managers propose initially to offer the shares of Common Stock to
the public at the initial public offering price set forth on the cover page of
this Prospectus and to certain dealers at such price less a concession not in
excess of $.95 per share of Common Stock. The International Managers may allow,
and such dealers may reallow, a discount not in excess of $.10 per share of
Common Stock on sales to certain other dealers. After the Offerings, the initial
public offering price, concession and discount may be changed.
The purchase price of the shares of Common Stock to be acquired by the
Underwriters upon the exercise of Warrants will be paid to the Company to the
extent of the exercise price of the A Warrants ($11.94 per share) and the
exercise price of the B Warrants ($15.92 per share), and the balance (net of
underwriting discount) will be paid to the Selling Shareholders. The purchase
price of the shares of Common Stock to be acquired by the Underwriters upon the
exercise of Reallocation Rights will be paid to the Kendall Investors to the
extent of the exercise price of the Reallocation Rights ($11.94 per share), and
the balance (net of underwriting discount) will be paid to the Selling
Shareholders.
Certain holders of Common Stock participating in the Offerings have granted
an option to the International Managers, exercisable during the 30-day period
after the date of this Prospectus, to purchase up to an aggregate of 152,065
additional shares of Common Stock at the public offering price set forth on the
cover page of this
37
<PAGE>
ALTERNATE INTERNATIONAL
Prospectus, less the underwriting discount. The International Managers may
exercise this option only to cover over-allotments, if any, made on the sale of
Common Stock offered hereby. To the extent that the International Managers
exercise this option, each International Manager will be obligated, subject to
certain conditions, to purchase the number of additional shares of Common Stock
proportionate to such International Manager's initial amount reflected in the
foregoing table. Certain holders of Common Stock participating in the Offerings
have also granted an option to the U.S. Underwriters, exercisable during the
30-day period after the date of this Prospectus, to purchase up to an aggregate
of 609,927 additional shares of Common Stock to cover over-allotments, if any,
on terms similar to those granted to the International Managers.
The Selling Shareholders have been informed that the International Managers
and the U.S. Underwriters have entered into an agreement (the "Intersyndicate
Agreement") providing for the coordination of their activities. Under the terms
of the Intersyndicate Agreement, the International Managers and the U.S.
Underwriters are permitted to sell shares of Common Stock (or Warrants or
Reallocation Rights to acquire such shares of Common Stock) to each other for
purposes of resale at a per share of Common Stock price equal to the initial
public offering price, less an amount not greater than the selling concession
less an amount equal to the exercise price in the case of Warrants or
Reallocation Rights. Under the terms of the Intersyndicate Agreement, the U.S.
Underwriters and any dealer to whom they sell shares of Common Stock (or
Warrants or Reallocation Rights to acquire such shares of Common Stock) will not
offer to sell or sell shares of Common Stock to persons who are non-United
States and non-Canadian persons or to persons they believe intend to resell to
persons who are non-United States and non-Canadian persons, and the
International Managers and any dealer to whom they sell shares of Common Stock
(or Warrants or Reallocation Rights to acquire such shares of Common Stock) will
not offer to sell or sell shares of Common Stock (or Warrants or Reallocation
Rights to acquire such shares of Common Stock) to persons who are United States
persons or Canadian persons or to persons they believe intend to resell to
United States persons or Canadian persons, except in each case for transactions
pursuant to such agreement.
Each International Manager has agreed that (i) it has not offered to sell or
sold, and it will not offer to sell or sell, in the United Kingdom by means of
any document any shares of Common Stock other than to persons whose ordinary
business it is to buy or sell shares or debentures, whether as principal or
agent, except in circumstances which do not constitute an offer to the public
within the meaning of the Companies Act of 1985, (ii) it has complied and will
comply with all applicable provisions of the Financial Services Act of 1986 (the
"Financial Services Act") with respect to anything done by it in relation to the
Common Stock in, from or otherwise involving the United Kingdom and (iii) it has
only issued or passed on and will only issue or pass on to any person in the
United Kingdom any document received by it in connection with the issuance of
Common Stock if that person is of a kind who is described in Article 9(3) of the
Financial Services Act of 1986 (Investment Advertisements) (Exemptions) Order
1988.
Purchasers of the shares offered hereby may be required to pay stamp taxes
and other charges in accordance with the laws and practice of the country of
purchase, in addition to the offering price set forth on the cover page hereof.
The Company and the Selling Shareholders have agreed, subject to certain
exceptions relating to employee benefit arrangements and transfers to certain
affiliated persons who execute a lock-up agreement, that they will not, directly
or indirectly, for a period of 90 days following the date of this Prospectus,
except with the prior consent of Merrill Lynch, Pierce, Fenner & Smith
Incorporated, on behalf of the Underwriters, sell, offer to sell, grant any
option for the sale of, or otherwise dispose of, any Common Stock or any
securities convertible into or exercisable for Common Stock.
The Company and the Selling Shareholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act.
VALIDITY OF SHARES
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company and the Selling Shareholders by M. Brian Moroze, Esq.,
General Counsel of the Company, Exeter, New Hampshire. Mr. Moroze owns 8,348
shares of the Company's Common Stock. Certain other legal matters will be passed
upon for the Company by Kramer, Levin, Naftalis, Nessen, Kamin & Frankel, 919
Third Avenue, New York, New York 10022. Joshua M. Berman, a director and the
Secretary of the Company, is counsel to the law firm of Kramer, Levin, Naftalis,
Nessen, Kamin & Frankel and owns 18,000 shares of the Company's Common Stock.
Certain legal matters will be passed upon for the Underwriters by Fried, Frank,
Harris, Shriver & Jacobson (a partnership including professional corporations),
One New York Plaza, New York, New York 10004.
EXPERTS
The Consolidated Financial Statements of the Company giving retroactive
effect to the Merger of the Company and Kendall for the year ended June 30, 1994
and the combination of the financial statements of the Company and Kendall for
the year ended June 30, 1993 included in this Prospectus have been so included
in reliance on the report of Coopers & Lybrand L.L.P., independent accountants,
given on the authority of that firm as experts in accounting and auditing.
The Consolidated Financial Statements of the Company as of June 30, 1993 and
for the years ended June 30, 1993 and 1992 (prior to retroactive restatement to
account for the pooling of interests with Kendall on October 19, 1994) included
in this Prospectus have been so included in reliance on the report (which
includes an explanatory paragraph relating to the fact that the Company changed
its method of accounting for incomes taxes and for post-retirement benefits
other than pensions in fiscal 1993) of Price Waterhouse LLP, independent
accountants, given on the authority of said firm as experts in auditing and
accounting.
38
<PAGE>
[ALTERNATE INTERNATIONAL]
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NO DEALER, SALESPERSON OR OTHER INDIVIDUAL
HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION
OR TO MAKE ANY REPRESENTATIONS OTHER THAN
THOSE CONTAINED IN THIS PROSPECTUS AND, IF
GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE 7,778,701 SHARES
COMPANY, THE SELLING SHAREHOLDERS OR ANY
UNDERWRITER, DEALER OR AGENT. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER TO SELL, OR THE
SOLICITATION OF ANY OFFER TO BUY, THE COMMON
STOCK TO ANY PERSON IN ANY JURISDICTION WHERE, TYCO INTERNATIONAL LTD.
OR IN ANY CIRCUMSTANCE IN WHICH, SUCH OFFER
OR SOLICITATION MAY NOT BE LEGALLY MADE.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE AN IMPLICATION THAT
THERE HAS NOT BEEN ANY CHANGE IN THE AFFAIRS COMMON STOCK
OF THE COMPANY OR THE INFORMATION SET FORTH
IN THE PROSPECTUS SINCE THE DATE HEREOF.
THERE ARE RESTRICTIONS ON THE OFFER AND
SALE OF COMMON STOCK OFFERED HEREBY IN
THE UNITED KINGDOM. ALL APPLICABLE PROVISIONS
OF THE FINANCIAL SERVICES ACT OF 1986 AND ------------------
THE COMPANIES ACT OF 1985 WITH RESPECT TO PROSPECTUS
ANYTHING DONE BY ANY PERSON IN RELATION TO ------------------
THE COMMON STOCK IN, FROM OR OTHERWISE
INVOLVING THE UNITED KINGDOM MUST BE
COMPLIED WITH. SEE "UNDERWRITING."
IN THE PROSPECTUS, REFERENCES TO "DOLLARS"
AND "$" ARE TO UNITED STATES DOLLARS.
------------------- MERRILL LYNCH INTERNATIONAL
TABLE OF CONTENTS LIMITED
PROSPECTUS
PAGE GOLDMAN SACHS INTERNATIONAL
----
Available Information................. 3 DONALDSON, LUFKIN & JENRETTE
Incorporation of Certain Information SECURITIES CORPORATION
by Reference........................ 3
Prospectus Summary.................... 4 LEHMAN BROTHERS
The Offerings......................... 4
Summary Consolidated Financial Data... 5 COMMERZBANK AKTIENGESELLSCHAFT
The Company........................... 7
Use of Proceeds....................... 16 CREDIT LYONNAIS SECURITIES
Price Range of Common Stock and
Dividends........................... 16 DRESDNER BANK
Capitalization........................ 17 AKTIENGESELLSCHAFT
Selected Consolidated Financial
Data................................ 18 NIKKO EUROPE PLC
Management's Discussion and Analysis
of Financial Condition and Operating
Results............................. 19 S.G.WARBURG SECURITIES
Selling Shareholders.................. 25
Description of Capital Stock.......... 30
Certain United States Tax Consequences FEBRUARY 23, 1995
to Non-U.S. Holders of Common
Stock............................... 35
Underwriting.......................... 37
Validity of Shares.................... 38
Experts............................... 38
Consolidated Financial Statements..... F-1
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