ADT 2006 Annual Report Download - page 164

TYCO INTERNATIONAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation, Restatement and Summary of Significant Accounting Policies (Continued)
Cash and Cash Equivalents—All highly liquid investments purchased with maturity of three months
or less from the time of purchase are considered to be cash equivalents.
On occasion, the Company is required to post cash collateral to secure obligations in respect of
various construction projects, contractual obligations related to acquisitions or divestitures or other
legal obligations. The amount of restricted cash in collateral was $77 million (of which $39 million is
included in current assets and $38 million is included in long-term assets) and $86 million (of which
$44 million is included in current assets and $42 million is included in long-term assets) at
September 29, 2006 and September 30, 2005, respectively.
Allowance for Doubtful Accounts—The allowance for doubtful accounts receivable reflects the best
estimate of probable losses inherent in Tyco’s receivable portfolio determined on the basis of historical
experience, specific allowances for known troubled accounts and other currently available evidence.
Inventories—Inventories are recorded at the lower of cost (primarily first-in, first-out) or market
value.
Property, Plant and Equipment, Net—Property, plant and equipment, net is recorded at cost less
accumulated depreciation. Depreciation expense for 2006, 2005 and 2004 was $1,415 million,
$1,431 million and $1,407 million, respectively. Maintenance and repair expenditures are charged to
expense when incurred. Depreciation is calculated using the straight-line method over the estimated
useful lives of the related assets as follows:
Buildings and related improvements .... 5 to 50 years
Leasehold improvements ............ Lesser of remaining term of the lease or
economic useful life
Subscriber systems ................. 10 to 14 years
Other machinery, equipment and
furniture and fixtures ............. 2 to 20 years
The Company generally considers its electronic security assets in three asset pools: internally
generated residential systems, internally generated commercial systems and customer accounts acquired
through the ADT dealer program. Subscriber systems represent internally generated residential systems
and internally generated commercial systems (customer accounts acquired through the ADT dealer
program are recorded as intangible assets). The internally generated residential and commercial
account pools are generally amortized using the straight-line method over a ten-year period (a
fourteen-year period is used for national commercial accounts and a fourteen-year period with write-off
of specific accounts upon discontinuance is used for residential and commercial accounts in certain
non-U.S. locations).
Long-Lived Assets—Tyco reviews long-lived assets, including amortizable intangible assets, for
impairment whenever events or changes in business circumstances indicate that the carrying amount of
the asset may not be fully recoverable. Tyco performs undiscounted operating cash flow analyses to
determine if impairment exists. For purposes of recognition and measurement of an impairment for
assets held for use, Tyco groups assets and liabilities at the lowest level for which cash flows are
separately identified. If an impairment is determined to exist, any related impairment loss is calculated
based on fair value. Impairment losses on assets to be disposed of, if any, are based on the estimated
proceeds to be received, less costs of disposal.
102 2006 Financials