ADT 2002 Annual Report Download - page 58

TYCO INTERNATIONAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
1. Basis of Presentation, Restatement and Summary of Significant Accounting Policies (continued)
on the Consolidated Statement of Operations for customer-funded research and development. Research
and development expense in our Consolidated Statement of Operations reflects company-sponsored
research and development only.
Advertising—Advertising costs are expensed when incurred and are included in selling, general and
administrative expenses.
Sale of Common Shares of a Subsidiary—Gains on the sale of all common shares issued by a
subsidiary are included in the Consolidated Statement of Operations.
Translation of Foreign Currency—Assets and liabilities of the Company’s subsidiaries operating
outside the United States which account in a functional currency other than U.S. dollars, other than
those operating in highly inflationary environments, are translated into U.S. dollars using year-end
exchange rates. Revenues and expenses are translated at the average exchange rates effective during
the year. Foreign currency translation gains and losses are included as a component of accumulated
other comprehensive (loss) income within shareholders’ equity. For subsidiaries operating in highly
inflationary environments, inventories and property, plant and equipment, including related expenses,
are translated at the rate of exchange in effect on the date the assets were acquired, while other assets
and liabilities are translated at year-end exchange rates. Translation adjustments for the assets and
liabilities of these subsidiaries are included in net income.
Gains and losses resulting from foreign currency transactions, the amounts of which are not
material, are included in net income.
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 reimbursements or
indemnity obligations under letters of credit and performance guarantees in respect of various
construction projects. The amount of restricted cash in collateral amounts at September 30, 2002 was
$196.2 million. There was no restricted cash at September 30, 2001.
Inventories—Inventories are recorded at the lower of cost (primarily first-in, first-out) or market
value.
Property, Plant and Equipment—Property, plant and equipment is recorded at cost less accumulated
depreciation. Maintenance and repair expenditures are charged to expense when incurred. For the
years ended September 30, 2002, 2001 and 2000, the Company capitalized interest of $100.1 million,
$76.3 million and $10.8 million, respectively. The increase in capitalized interest is primarily due to
construction of the TGN, which began during the last quarter of fiscal 2000. The straight-line method
of depreciation is used over the estimated useful lives of the related assets as follows:
Buildings and related improvements .... 5 to 50 years
Leasehold improvements ............ Remaining term of the lease
Subscriber systems ................. 10 to 14 years
Other plant, machinery, equipment and
furniture and fixtures ............. 2 to 25 years
Tyco Global Network—placed in service . 15 years
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