ADT 2002 Annual Report Download - page 111

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TYCO INTERNATIONAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
19. Financial Instruments (continued)
approximated book value at September 30, 2002 and 2001. See Note 18 for the fair value estimates of
debt.
In accordance with SFAS No. 133, all derivative financial instruments are reported on the
Consolidated Balance Sheet at fair value, and changes in a derivative’s fair value are recognized
currently in earnings unless specific hedge criteria are met. While it is not the Company’s intention to
terminate its derivative financial instruments, based on their estimated fair values the termination of
forward and option foreign currency exchange contracts, forward commodity contracts and interest rate
swaps at September 30, 2002 would have resulted in a $34.0 million gain, a $1.2 million loss, and a
$2.5 million gain, respectively, and at September 30, 2001 would have resulted in a $8.6 million gain, a
$6.8 million loss, and a $139.6 million gain, respectively. At September 30, 2002 and 2001, the book
values of derivative financial instruments recorded on the Consolidated Balance Sheets approximate
fair values.
Interest Rate Exposures
The Company uses interest rate swaps to hedge its exposure to interest rate risk by exchanging
fixed rate interest on certain of its debt for variable rate amounts. These interest rate swaps are
designated as fair value hedges. Certain of the Company’s interest rate swaps entered into during fiscal
2002, as assessed using the short-cut method under SFAS No. 133, were highly effective. The ineffective
element of the gains and losses on certain other interest rate swaps during fiscal 2002 and fiscal 2001,
totaling a net gain of $116.1 million and a net gain of $19.7 million, respectively, have been recognized
in interest expense, net, along with the effective element of the changes in fair value of the interest rate
swaps and the related hedged debt.
Net Investments
In fiscal 2001, Tyco used cross currency swaps and designated portions of foreign-currency
denominated debt to hedge the foreign-currency exposure of certain net investments in foreign
operations. A net unrealized loss of $39.4 million was included in the cumulative translation adjustment
during fiscal 2001 in connection with these hedges. In fiscal 2002, the Company had no such swaps.
Other
Tyco uses various options, swaps and forwards not designated as hedging instruments under SFAS
No. 133 to hedge the impact of the variability in the price of raw materials, such as copper and other
commodities, and the impact of the variability in foreign exchange rates on accounts and notes
receivable, intercompany loan balances and subsidiary earnings denominated in certain foreign
currencies.
20. Commitments and Contingencies
The Company occupies certain facilities under leases that expire at various dates through the year
2027. Rental expense under these leases and leases for equipment was $848.9 million, $634.7 million
and $442.7 million for fiscal 2002, fiscal 2001 and fiscal 2000, respectively. At September 30, 2002, the
minimum lease payment obligations under non-cancelable operating leases were as follows (amounts
include payments due on sale-leaseback transactions): $808.4 million in fiscal 2003, $685.1 million in
fiscal 2004, $511.5 million in fiscal 2005, $397.9 million in fiscal 2006, $258.1 million in fiscal 2007 and
an aggregate of $1,087.5 million in fiscal years 2008 through 2027. In addition, the Company has the
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