ADT 1999 Annual Report Download - page 44

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Property, Plant and Equipment
Property, plant and equipment is principally recorded at cost less
accumulated depreciation. Maintenance and repair expenditures are
charged to expense when incurred. The straight-line method of depre-
ciation is used over the estimated useful lives of the related assets as
follows:
Buildings and related improvements 5 to 50 years
Leasehold improvements Remaining term of the lease
Subscriber systems 10 to 14 years
Other plant, machinery, equipment
and furniture and fixtures 2 to 25 years
Gains and losses arising on the disposal of property, plant and
equipment are included in the Consolidated Statements of Operations
and were not material.
Goodwill and Other Intangible Assets
Goodwill, which is being amortized on a straight-line basis over peri-
ods ranging from 10 to 40 years, was $10,639.3 million and
$6,104.1 million, net, at September 30, 1999 and 1998, respectively.
Accumulated amortization amounted to $615.6 million at September
30, 1999 and $499.7 million at September 30, 1998.
Other intangible assets were $1,519.6 million and $1,001.4 mil-
lion, net, at September 30, 1999 and 1998, respectively. These
amounts include patents, trademarks, customer contracts and other
items, which are being amortized on a straight-line basis over lives
ranging from 2 to 40 years. At September 30, 1999 and 1998, accu-
mulated amortization amounted to $319.5 million and $207.1 million,
respectively.
Investments
The Company accounts for its long-term investments that represent
less than twenty percent ownership using Statement of Financial
Accounting Standards No. 115, “Accounting for Certain Investments in
Debt and Equity Securities.” This standard requires that certain debt
and equity securities be adjusted to market value at the end of each
accounting period. Unrealized market gains and losses are charged to
earnings if the securities are traded for short-term profit. Otherwise,
such unrealized gains and losses are charged or credited to share-
holders’ equity. Management determines the proper classification of
investments in obligations with fixed maturities and marketable equity
securities at the time of purchase and re-evaluates such designations
as of each balance sheet date. Realized gains and losses on sales of
investments, as determined on a specific identification basis, are
included in the Consolidated Statements of Operations and were not
material.
Equity Investments
For investments in which the Company owns or controls twenty per-
cent or more of the voting shares, or over which it exerts significant
influence over operating and financial policies, the equity method of
accounting is used. The Company’s share of net income or losses of
equity investments is included in the Consolidated Statements of
Operations and was not material in any period presented.
Long-Lived Assets
The Company periodically evaluates the net realizable value of long-
lived assets, including goodwill and other intangible assets and prop-
erty, plant and equipment, relying on a number of factors including
operating results, business plans, economic projections and antici-
pated future cash flows. An impairment in the carrying value of an
asset is assessed when the undiscounted, expected future operating
cash flows derived from the asset are less than its carrying value.
Revenue Recognition
Revenue from the sale of services or products is recognized as ser-
vices are rendered or shipments are made. Subscriber billings for ser-
vices not yet rendered are deferred and taken into income as earned,
and the deferred element is included in current liabilities. Revenue
from the installation of electronic security systems is recognized when
installations are completed.
Contract sales for the installation of fire protection systems,
underwater cable systems and other construction related projects are
recorded on the percentage-of-completion method. Profits recognized
on contracts in process are based upon estimated contract revenue
and related cost to completion. Revisions in cost estimates as con-
tracts progress have the effect of increasing or decreasing profits in
the current period. Provisions for anticipated losses are made in the
period in which they first become determinable.
Accounts receivable include amounts billed under retainage pro-
visions primarily for fire protection contracts. Retention balances of
$33.3 million at September 30, 1999, which become due upon contract
completion and acceptance, are expected to be substantially collected
during the fiscal year ending September 30, 2000 (“Fiscal 2000”).
Share Premium and Contributed Surplus
In accordance with the Bermuda Companies Act of 1981, when the
Company issues shares for cash at a premium to their par value, the
resulting premium is credited to a share premium account, a non-
distributable reserve. When the Company issues shares in exchange
for shares of another company, the excess of the fair value of the
shares acquired over the par value of the shares issued by the Com-
pany is credited, where applicable, to contributed surplus, which is,
subject to certain conditions, a distributable reserve.
Income Taxes
Deferred tax liabilities and assets are recognized for the expected
future tax consequences of events that have been included in the con-
solidated financial statements or tax returns. Deferred tax liabilities
and assets are determined based on the differences between the con-
solidated financial statements and the tax basis of assets and liabili-
ties, using tax rates in effect for the years in which the differences are
expected to reverse. A valuation allowance is provided to offset any
net deferred tax assets if, based upon the available evidence, it is
more likely than not that some or all of the deferred tax assets will not
be realized.