ADT 2015 Annual Report Download - page 151

FORM 10-K
million, $70 million and $48 million, respectively. Repairs and maintenance expenditures are expensed 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
property taxes on the subscriber system assets and upon customer termination, may retrieve such assets.
Accumulated depreciation of subscriber system assets was $2.6 billion and $2.4 billion as of September 25, 2015
and September 26, 2014, respectively. Depreciation expense relating to subscriber system assets for fiscal years
2015, 2014 and 2013 was $436 million, $381 million and $325 million, respectively.
Deferred subscriber acquisition costs represent direct and incremental selling expenses (i.e., commissions)
related to acquiring the customer. Commissions paid in connection with the establishment of the monitoring
contract are determined based on a percentage of the contractual fees and do not exceed deferred subscriber
acquisition revenue. Amortization expense relating to deferred subscriber acquisition costs for fiscal years 2015,
2014 and 2013 was $141 million, $131 million and $123 million, respectively.
Subscriber system assets and any related deferred subscriber acquisition costs and deferred subscriber
acquisition revenue resulting from the customer acquisition are accounted for using pools based on the month
and year of acquisition. The Company amortizes its pooled subscriber system assets and related deferred costs
and deferred revenue using an accelerated method over the expected life of the customer relationship, which is 15
years. In order to align the amortization of subscriber system assets and related deferred costs and deferred
revenue to the pattern in which their economic benefits are consumed, the accelerated method utilizes an average
declining balance rate of 250% and converts to straight-line methodology when the resulting amortization charge
is greater than that from the accelerated method, resulting in an average amortization of 60% of the pool within
the first five years, 24% within the second five years and 16% within the final five years.
Dealer and Other Amortizable Intangible Assets, Net—Intangible assets primarily include contracts and
related customer relationships. Certain contracts and related customer relationships are generated from an
external network of independent dealers who operate under the ADT dealer program. These contracts and related
customer relationships are recorded at their contractually determined purchase price. During the charge-back
period, generally twelve to fifteen months, any cancellation of monitoring service, including those that result
from customer payment delinquencies, results in a charge-back by the Company to the dealer for the full amount
of the contract purchase price. The Company records the amount charged back to the dealer as a reduction of the
intangible assets.
Intangible assets arising from the ADT dealer program described above are accounted for using pools based
on the month and year of acquisition. The Company amortizes its pooled dealer intangible assets using an
accelerated method over the expected life of the customer relationship, which is 15 years. The accelerated
method for amortizing these intangible assets utilizes an average declining balance rate of 300% and converts to
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