ADT 2014 Annual Report Download - page 120

FORM 10-K
value. In performing these assessments, management relies on various factors, including operating results,
business plans, economic projections, anticipated future cash flows and other market data.
We recorded no goodwill impairments in conjunction with our annual goodwill impairment assessment,
performed as of the first day of the fourth quarter of fiscal year 2014. While historical performance and current
expectations have resulted in fair values of goodwill in excess of carrying values, if our assumptions are not
realized, it is possible that in the future an impairment charge may need to be recorded. However, it is not
possible at this time to determine whether an impairment charge would result or if such a charge would be
material. We will continue to monitor the recoverability of our goodwill.
Fair value determinations require considerable judgment and are sensitive to changes in underlying
assumptions and factors. As a result, there can be no assurance that the estimates and assumptions made for
purposes of the annual goodwill impairment test will prove to be accurate predictions of the future. Examples of
events or circumstances that could reasonably be expected to negatively affect the underlying key assumptions
and ultimately impact the estimated fair value of the business may include such items as: a prolonged downturn
in the business environment (i.e. sales volumes and prices), changes in economic conditions that significantly
differ from our assumptions in timing or degree, volatility in equity and debt markets resulting in higher discount
rates and unexpected regulatory changes.
Long-Lived Assets
We review long lived assets held and used by us, including property and equipment and amortizable
intangible assets, for impairment whenever events or changes in business circumstances indicate that the carrying
amount of the asset group may not be fully recoverable. If an impairment is determined to exist, we calculate any
related impairment loss based on fair value.
Impairments on long-lived assets to be disposed of are determined based upon the fair value less cost to sell
of the applicable assets. The calculation of the fair value of long-lived assets is based on assumptions concerning
the amount and timing of estimated future cash flows and assumed discount rates, reflecting varying degrees of
perceived risk.
Income Taxes
For purposes of our Consolidated and Combined Financial Statements for periods prior to the Separation,
income tax expense, deferred tax balances and tax carryforwards were recorded as if ADT filed tax returns on a
standalone basis separate from Tyco (“Separate Return Method”). The Separate Return Method applies the
accounting guidance for income taxes to the standalone financial statements as if we were a separate taxpayer
and a standalone enterprise for the periods prior to the Separation. The deferred tax balances reflected in our
Consolidated Balance Sheets as of September 26, 2014 and September 27, 2013 have been recorded on a
consolidated return basis. The calculation of income taxes for the Company requires a considerable amount of
judgment and use of both estimates and allocations. Prior to the Separation, we primarily operated within a Tyco
U.S. consolidated group and within a standalone Canadian entity. In certain instances, tax losses or credits
generated by Tyco’s other businesses continue to be available to us in periods after the Separation.
In determining taxable income for our Consolidated and Combined Financial Statements, we must make
certain estimates and judgments. These estimates and judgments affect the calculation of certain tax liabilities
and the determination of the recoverability of certain of the deferred tax assets, which arise from temporary
differences between the tax and financial statement recognition of revenue and expense.
In evaluating our ability to recover our deferred tax assets, we consider all available positive and negative
evidence including our past operating results, the existence of cumulative losses in the most recent years and our
forecast of future taxable income. In estimating future taxable income, we develop assumptions including the
amount of future pre-tax operating income, the reversal of temporary differences and the implementation of
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