ADT 2006 Annual Report Download - page 166

TYCO INTERNATIONAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation, Restatement and Summary of Significant Accounting Policies (Continued)
Other contracts and related customer relationships, as well as intellectual property consisting
primarily of patents, trademarks and unpatented technology, are amortized on a straight-line basis over
five to forty years. The Company evaluates the remaining useful life of intangible assets on a periodic
basis to determine whether events and circumstances warrant a revision to the remaining useful life.
Investments—The Company invests in debt and equity securities. Long-term investments in
marketable equity securities that represent less than twenty percent ownership are marked to market at
the end of each accounting period. Unrealized gains and losses are credited or charged to other
comprehensive income within shareholders’ equity for available for sale securities unless an unrealized
loss is deemed to be other than temporary, in which case such loss is charged to earnings. Management
determines the proper classification of investments in debt obligations with fixed maturities and equity
securities for which there is a readily determinable market value at the time of purchase and
reevaluates such classifications as of each balance sheet date. Realized gains and losses on sales of
investments are included in the Consolidated Statements of Income.
Other equity investments for which the Company does not have the ability to exercise significant
influence and for which there is not a readily determinable market value are accounted for under the
cost method of accounting. The Company periodically evaluates the carrying value of its investments
accounted for under the cost method of accounting, such that they are recorded at the lower of cost or
estimated net realizable value. For equity investments in which the Company exerts significant influence
over operating and financial policies but do not control, 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 Income and was not material in any period presented.
Product Warranty—The Company records estimated product warranty costs at the time of sale.
Manufactured products are warranted against defects in material and workmanship when properly used
for their intended purpose, installed correctly, and appropriately maintained. Generally, product
warranties are implicit in the sale; however, the customer may purchase an extended warranty.
Manufactured equipment is also warranted in the same manner as product warranties. However, in
most instances the warranty is either negotiated in the contract or sold as a separate component.
Warranty period terms range from 90 days (e.g., consumable products) up to 20 years (e.g., power
system batteries). The warranty liability is determined based on historical information such as past
experience, product failure rates or number of units repaired, estimated cost of material and labor, and
in certain instances estimated property damage.
Environmental Costs—Tyco is subject to laws and regulations relating to protecting the
environment. Tyco provides for expenses associated with environmental remediation obligations when
such amounts are probable and can be reasonably estimated. The Company discounts environmental
liabilities using a risk-free rate of return when the obligation is fixed or reliably determinable. The
impact of the discount on the Consolidated Balance Sheets at both September 29, 2006 and
September 30, 2005 was to reduce the obligation by approximately $14 million.
104 2006 Financials