Advanced Medical Optics (EYE)

5.    Equipment Under Lease Arrangements

At December 31, 2006 and December 31, 2005 equipment under operating leases consisted of lasers leased to customers. The operating leases typically have terms up to 48 months and are generally cancelable during the first three to six months, converting to a non-cancelable lease at the end of six months unless the customer provides a written notice of cancellation 30 days prior to the cancellation date. To date only one operating lease has been canceled. The customer typically can purchase the leased equipment at any time during lease term for the difference between the purchase price and the underlying operating lease payments made.

The Company provides long-term financing under sales-type lease arrangements for certain customers. The Company had approximately $6.9 million and $1.8 million of net receivables outstanding at December 31, 2006 and 2005, respectively, under sales-type lease arrangements. Approximately $5.0 million and $1.4 million of these balances were due to be paid after one year at December 31, 2006 and 2005, respectively, with the balance due within one year. The Company includes the portion of receivables and long-term notes due to be paid within one year in prepaid expenses and other current assets and the remaining balance in long term other assets in the accompanying balance sheets (see Note 7—Other Assets). The Company records interest during the sales-type lease term using a market rate of interest.

Future lease payments receivable under non-cancelable operating leases and sales-type leases as of December 31, 2006 are as follows: