ADT 2014 Annual Report Download - page 138

FORM 10-K
Other (Expense) Income—During fiscal year 2014, the Company recorded $35 million of other expense,
which is comprised primarily of $38 million of non-taxable expense representing a reduction in the receivable
from Tyco pursuant to the tax sharing agreement entered into in conjunction with the Separation largely due to
the resolution of certain components of the Company’s unrecognized tax benefits. During fiscal year 2013, the
Company recorded $24 million of other income, which is comprised primarily of $23 million of non-taxable
income recorded pursuant to the tax sharing agreement for amounts owed by Tyco and Pentair Ltd. in connection
with the exercise of ADT share based awards held by certain Tyco and Pentair Ltd. employees. See Note 6 for
further information.
Translation of Foreign Currency—The Company’s Consolidated and Combined Financial Statements are
reported in U.S. dollars. A portion of the Company’s business is transacted in Canadian dollars. The Company’s
Canadian entity maintains its records in Canadian dollars. The assets and liabilities are translated into U.S.
dollars using rates of exchange at the balance sheet date and translation adjustments are recorded in accumulated
other comprehensive income. Revenue and expenses are translated at average rates of exchange in effect during
the year.
Cash and Cash Equivalents—All highly liquid investments with original maturities of three months or less
from the time of purchase are considered to be cash equivalents.
Allowance for Doubtful Accounts—The allowance for doubtful accounts receivable reflects the best estimate
of probable losses inherent in the Company’s receivable portfolio determined on the basis of historical
experience and other currently available evidence.
Inventories—Inventories are recorded at the lower of cost or market value. Cost is computed using standard
cost, which approximates average cost. Inventories consisted of the following ($ in millions):
September 26,
2014
September 27,
2013
Work in progress ........................... $ 2 $ 3
Finished goods ............................. 74 63
Inventories ............................ $76 $66
Property and Equipment, Net—Property and equipment, net is recorded at cost less accumulated
depreciation. Depreciation expense on property and equipment for fiscal years 2014, 2013 and 2012 was $70
million, $48 million and $38 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 Up to 40 years
Leasehold improvements Lesser of remaining term of the lease or economic
useful life
Other machinery, equipment and furniture and fixtures 3 to 14 years
Subscriber System Assets and Deferred Subscriber Acquisition Costs—The Company records certain assets
in connection with the acquisition of new customers depending on how the accounts are generated: subscriber
system assets and deferred subscriber acquisition costs for customer accounts that are generated internally, and
dealer intangibles for customer accounts that are generated through the ADT dealer program.
Subscriber system assets represent capitalized equipment and installation costs incurred in connection with
transactions in which the Company retains ownership of the security system. These assets embody a probable
future economic benefit as they generate future monitoring revenue for the Company. The Company pays
72