ADT 2006 Annual Report Download - page 162

TYCO INTERNATIONAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation, Restatement and Summary of Significant Accounting Policies (Continued)
during the year are included in the Consolidated Financial Statements from the effective date of
acquisition or up to the date of disposal.
During 2006, Tyco completed the sale of the Plastics and Adhesives segment and entered into a
definitive agreement to sell the Printed Circuit Group (‘‘PCG’’) business, a business of the Electronics
segment. As the held for sale and discontinued operations criteria were met, the operations of the
Plastics and Adhesives segment and PCG are reflected as discontinued operations for all periods
presented.
Use of Estimates—The preparation of the Consolidated Financial Statements in conformity with
GAAP requires management to make estimates and assumptions that affect the reported amount of
assets and liabilities, disclosure of contingent assets and liabilities and reported amounts of revenues
and expenses. Significant estimates in these Consolidated Financial Statements include restructuring
and other charges and credits, acquisition liabilities, allowances for doubtful accounts receivable,
estimates of future cash flows associated with asset impairments, useful lives for depreciation and
amortization, loss contingencies, net realizable value of inventories, fair values of financial instruments,
estimated contract revenue and related costs, environmental and legal liabilities, income taxes and tax
valuation allowances, and pension and postretirement employee benefit expenses. Actual results could
differ materially from these estimates.
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. 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. Net income for the transition period related to this change was $26 million and
was reported within Shareholders’ Equity during 2005. References to 2006, 2005 and 2004 are to Tyco’s
fiscal year ending in September unless otherwise indicated.
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.
Sales of security monitoring systems include multiple elements including equipment installation,
monitoring services and maintenance agreements. Amounts assigned to each component are based on
that component’s objectively determined fair value. If fair value cannot be objectively determined for a
sale involving multiple elements, the Company recognizes the revenue from installation of services,
along with the associated direct incremental costs, over the contract life.
100 2006 Financials