ADT 2005 Annual Report Download - page 161

TYCO INTERNATIONAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation and Summary of Significant Accounting Policies
Basis of Presentation—The Consolidated Financial Statements include the consolidated accounts of
Tyco International Ltd., a company organized under the laws of Bermuda, and its subsidiaries (Tyco
and all its subsidiaries, hereinafter collectively referred to as the ‘‘Company’’ or ‘‘Tyco’’) and have been
prepared in United States Dollars, and in accordance with Generally Accepted Accounting Principles in
the United States (‘‘GAAP’’). Unless otherwise indicated, references in the Consolidated Financial
Statements to 2005, 2004 and 2003 are to Tyco’s fiscal year ended September 30, 2005, 2004 and 2003,
respectively.
Principles of Consolidation—Tyco is a holding company which conducts its business through its
operating subsidiaries. The Company is a global, diversified company that provides products and
services in four business segments: Fire and Security, Electronics, Healthcare and Engineered Products
and Services (see Note 22). The Company consolidates companies in which it owns or controls more
than fifty percent of the voting shares. Also, the Company consolidates variable interest entities in
which the Company bears a majority of the risk to the entities’ potential losses or stands to gain from a
majority of the entities’ expected returns. All significant intercompany transactions have been
eliminated. The results of companies acquired or disposed of during the year are included in the
Consolidated Financial Statements from the effective date of acquisition or up to the date of disposal.
As of September 30, 2005, the Plastics and Adhesives business segment met the held for sale
criteria and its results of operations have been included in discontinued operations for all periods
presented.
Change in Fiscal Year and Reporting Calendar Alignment—Effective October 1, 2004, Tyco changed
its fiscal year end from a calendar fiscal year ending September 30 to a ‘‘52-53 week’’ year ending on
the last Friday of September, such that each quarterly period will be 13 weeks in length. For fiscal
years in which there are 53 weeks, the fourth quarter reporting period will be 14 weeks, with the first
such occurrence taking place in fiscal 2011. In addition, certain of the Company’s subsidiaries had
consistently closed their books up to one month prior to the Company’s fiscal period end. These
subsidiaries now report results for the same period as the reported results of the consolidated
Company. The impact of this change was not material to the Consolidated Financial Statements. This
change is also consistent with the Company’s ongoing efforts to enhance controls and improve the
transparency of its reporting, as this change better aligns the Company’s external reporting with the
Company’s internal operational processes. Net income for the transition period related to this change
was $26 million and was reported within Shareholders’ Equity.
Revenue Recognition—The Company recognizes revenue principally on four types of transactions—sales
of products, sales of security systems, subscriber billings for monitoring services and contract sales.
Revenue from the sales of products is recognized at the time title and risks and rewards of
ownership pass. This is generally when the products reach the free-on-board shipping point, the sales
price is fixed and determinable and collection is reasonably assured.
Provisions for certain rebates, sales incentives, trade promotions, coupons, product returns and
discounts to customers are accounted for as reductions in determining sales in the same period the
related sales are recorded. These provisions are based on terms of arrangements with direct, indirect
and other market participants. Rebates are estimated based on sales terms, historical experience and
trend analysis.
2005 Financials 85