ADT 2006 Annual Report Download - page 192

TYCO INTERNATIONAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
17. Financial Instruments (Continued)
to earnings and recorded as an adjustment to cost of sales when the underlying transaction impacts
earnings.
Tyco uses various options, swaps, and forwards not designated as hedging instruments, to manage
foreign currency exposures on accounts and notes receivable, accounts payable, intercompany loans and
forecasted transactions denominated in certain foreign currencies. For derivatives not designated as
hedging instruments, the Company records changes in fair value through earnings in the period of
change. The fair value of these instruments totaled $23 million at September 29, 2006.
18. Commitments and Contingencies
The Company has facility, vehicle and equipment leases that expire at various dates through the
year 2052. Rental expense under these leases was $717 million, $764 million, and $764 million for 2006,
2005 and 2004, respectively. The Company also has facility and equipment commitments under capital
leases.
Following is a schedule of minimum lease payments for non-cancelable leases as of September 29,
2006 (in millions):
Operating Capital
Leases Leases(1)
2007 .................................................. $ 516 $ 26
2008 .................................................. 405 27
2009 .................................................. 302 22
2010 .................................................. 214 9
2011 .................................................. 158 7
Thereafter .............................................. 499 76
Total minimum lease payments .............................. $2,094 $167
(1) Excludes the impact of interest.
The Company also has purchase obligations related to commitments to purchase certain goods and
services. At September 29, 2006, such obligations were as follows: $222 million in 2007, $24 million in
2008, $10 million in 2009, $10 million in 2010, $7 million in 2011, and an aggregate of $24 million in
2012 and thereafter.
At September 29, 2006, the Company had 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 29, 2006, the Company expected this obligation to
be $54 million, which is recorded in the accompanying Consolidated Balance Sheets, based on an
estimate of the fair value of the vessels performed by management with the assistance of a third-party
valuation. During 2006, 2005 and 2004, the Company incurred expenses of $14 million in each year
related to this expected obligation. See Note 28—Subsequent Events.
At September 29, 2006, 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
130 2006 Financials