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70
1.
Basis of Presentation and Summary
of Significant Accounting Policies
Basis of Presentation The Consolidated Financial Statements
include the consolidated accounts of Tyco International Ltd., a
company incorporated in Bermuda, and its subsidiaries (Tyco
and all its subsidiaries, hereinafter “we,” the “Company” or
“Tyco”) and have been prepared in United States dollars, and in
accordance with Generally Accepted Accounting Principles in
the United States (“GAAP”).
Business The Company operates in the following business
segments:
•• Fire and Security designs, manufactures, installs, monitors
and services electronic security and fire protection systems.
•• Electronics designs, manufactures and distributes electrical
and electronic components, and designs, manufactures,
installs, operates and maintains undersea fiber optic cable
communications systems.
•• Healthcare designs, manufactures and distributes medical
devices and supplies, imaging agents, pharmaceuticals and
adult incontinence and infant care products.
•• Engineered Products and Services designs, manufactures,
distributes and services engineered products including indus-
trial valves and controls and steel tubular goods and provides
environmental and other industrial consulting services.
•• Plastics and Adhesives designs, manufactures and distrib-
utes plastic products, adhesives and films.
Principles of Consolidation Tyco is a holding company whose
assets consist of its investments in its subsidiaries, intercompany
balances, long-term debt and holdings of cash and cash equiva-
lents. The businesses of the consolidated group are conducted
through Tyco’s subsidiaries. The Company consolidates com-
panies in which it owns or controls more than fifty percent of
the voting shares unless control is likely to be temporary. Also, in
accordance with FIN 46, the Company consolidates variable
interest entities in which the Company bears a majority of the
risk to its potential losses or stands to gain from a majority of its
expected returns. The results of companies acquired or disposed
of during the fiscal year are included in the Consolidated
Financial Statements from the effective date of acquisition or
up to the date of disposal. All significant intercompany balances
and transactions have been eliminated in consolidation.
Revenue Recognition The Company adopted Staff Accounting
Bulletin No. 101 (“SAB 101”),“Revenue Recognition in Financial
Statements,” in the fourth quarter of fiscal 2001 retroactive to
the beginning of the fiscal year and is recognizing revenues
from the installation of owned security systems and deferring
the associated direct incremental costs over the estimated cus-
tomer lives.
Revenue from the sale of products is recognized according
to the terms of the sales arrangement, which is customarily when
the products reach the free-on-board shipping point. Revenue
from the sale of services is recognized as services are rendered.
Subscriber billings for services not yet rendered are deferred
and recognized as revenue as the services are rendered, and the
associated deferred revenue is included in current liabilities or
long-term liabilities, as appropriate.
Contract sales for the installation of fire protection systems,
undersea fiber optic cable systems and other construction-
related projects are recorded on the percentage-of-completion
method. Profits recognized on contracts in process are based
upon estimated contract revenue and related cost to completion.
Cost to completion for undersea cable systems is measured based
on the ratio of costs incurred to total estimated costs, while cost
to completion for the installation of fire protection systems and
other construction-related projects is measured using the
efforts-expended method based on direct labor hours expended
and actual material used. Revisions in cost estimates as contracts
progress have the effect of increasing or decreasing profits in the
current period. Provisions for anticipated losses are made in the
period in which they first become determinable.
Certain of the Company’s long-term contracts have warranty
obligations. Estimated warranty costs for each contract are
determined based on the contract terms and technology specific
issues. These costs are included in total estimated contract costs
accrued over the construction period of the respective contracts
under percentage-of-completion accounting.
The Company’s global undersea fiber optic network, on
which it sells bandwidth capacity, is known as the Tyco Global
Network (“TGN”). The Company’s sales of bandwidth capacity
TYCO INTERNATIONAL LTD.
Notes to
Consolidated
Financial
Statements