ADT 2009 Annual Report Download - page 225

TYCO INTERNATIONAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
14. Financial Instruments (Continued)
Derivative Financial Instruments
As described above, under the caption ‘‘Derivative Instruments’’ derivative assets and liabilities
consist principally of forward foreign currency exchange contracts and interest rate swaps. The fair
values for these derivative financial instruments are derived from pricing models that take into account
the contractual terms and features of each instrument, forward foreign currency rates for the
Company’s foreign exchange contracts and yield curves for the Company’s interest rate swaps existing
at the end of the period. Valuations are adjusted to reflect creditworthiness of the counterparty for
assets and the creditworthiness of the Company for liabilities. Such adjustments are based on
observable market evidence and are categorized as Level 2 exposures.
Assets and Liabilities Measured at Fair Value on a Recurring Basis
The following table presents the Company’s assets and liabilities measured at fair value on a
recurring basis as of September 25, 2009 by level within the fair value hierarchy. Financial assets and
liabilities are classified in their entirety based on the lowest level of input that is significant to the
valuation.
Fair Value at
($ in millions) Level 1 Level 2 September 25, 2009
Assets
Available-for-sale securities .......................... $ 60 $ 280 $ 340
Derivative foreign exchange contracts in an asset position(1) ...—30 30
Derivative interest rate swap contracts .................. — 3 3
Total ......................................... $ 60 $ 313 $ 373
Liabilities
Derivative foreign exchange contracts in a liability position(1) ..$—$(5)$(5)
(1) The Company nets derivative assets and liabilities when aggregating derivative contracts for presentation in the
Consolidated Financial Statements if certain criteria are met. These amounts include fair value adjustments related to the
Company’s own credit risk and counterparty credit risk.
Other
During fiscal 2009 and 2008, the Company designated certain intercompany loans as permanent in
nature. As of September 25, 2009, $3.0 billion of intercompany loans have been designated as
permanent in nature and for the year ended September 25, 2009, the Company recorded the
cumulative translation loss through accumulated other comprehensive (loss) income related to these
loans, which had no material impact for fiscal 2009 and $141 million for fiscal 2008.
During the fourth quarter of fiscal year 2008, the Company issued 217,589 shares of Tyco common
stock and obtained shares of Covidien and Tyco Electronics in connection with the redemption of the
Company’s 3.125% convertible senior debentures. Given the requirement to convert the Company’s
3.125% convertible senior debentures into shares of Tyco, Covidien and Tyco Electronics, the Company
had previously recognized an asset for the fair value of the Covidien and Tyco Electronics shares and a
liability for the related conversion option. The Company recorded income of $6 million to other
expense, net related to the settlement of the previously recognized asset and liability during the year
2009 Financials 133