ADT 2005 Annual Report Download - page 194

TYCO INTERNATIONAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
17. Commitments and Contingencies
The Company has facility, vehicle and equipment leases that expire at various dates through the
year 2050. Rental expense under these leases and leases for equipment was $769 million, $772 million,
and $813 million for 2005, 2004 and 2003, respectively. At September 30, 2005, the minimum lease
payment obligations under non-cancelable operating leases were as follows: $583 million in 2006,
$449 million in 2007, $344 million in 2008, $248 million in 2009, $165 million in 2010 and an aggregate
of $548 million in years 2011 through 2050. These payments include obligations under an off-balance
sheet leasing arrangement for five cable laying sea vessels. Upon expiration of this lease in
October 2006, a subsidiary of the Company has the option to buy these vessels for approximately
$280 million, or return the vessels to the lessor and, under a residual guarantee, pay any shortfall in
sales proceeds to the lessor from a third party in an amount not to exceed $235 million. As of
September 30, 2005, the Company expects this obligation to be $54 million, which is recorded in the
accompanying Consolidated Balance Sheet, based on an estimate of the fair value of the vessels
performed by management with the assistance of a third-party valuation. During 2005, 2004 and 2003,
the Company incurred expenses of $14 million, $14 million, and $11 million, respectively, related to this
expected obligation.
The Company also has purchase obligations related to commitments to purchase certain goods and
services. At September 30, 2005, such obligations were as follows: $183 million in 2006, $29 million in
2007, $20 million in 2008, $9 million in 2009, $9 million in 2010, and an aggregate of $28 million in
2011 and thereafter.
At September 30, 2005, the Company had a contingent purchase price liability of $80 million
related to the 2001 acquisition of Com-Net by Electronics. This represents the maximum amount
payable to the former shareholders of Com-Net only after the construction and installation of a
communications system for the State of Florida is finished and the State has approved the system based
on the guidelines set forth in the contract. A liability for this contingency has not been recorded in
Tyco’s Consolidated Financial Statements as the outcome of this contingency cannot be reasonably
determined.
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, results of operations or cash flows.
Class Actions
As a result of actions taken by the Company’s former senior corporate management, Tyco, some
members of the Company’s former senior corporate management, former members of our Board of
Directors and the Company’s current Chief Executive Officer are named defendants in a number of
purported class actions alleging violations of the disclosure provisions of the federal securities laws.
Tyco, certain of the Company’s current and former employees, some members of the Company’s former
senior corporate management and some former members of the Company’s Board of Directors also are
named as defendants in several Employee Retirement Income Security Act (‘‘ERISA’’) class actions. In
addition, Tyco and some members of the Company’s former senior corporate management are subject
to a SEC inquiry, and some members of the Company’s former senior corporate management are
named as defendants in criminal cases being prosecuted by the District Attorney of New York County.
The findings and outcomes of the prosecutions and the SEC civil action may affect the course of the
purported securities class actions and ERISA class actions pending against Tyco. The Company is
generally obligated to indemnify its directors and officers and its former directors and officers who are
118 2005 Financials