ADT 2003 Annual Report Download - page 73

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are generally structured as either service arrangements or oper-
ating leases. The Company recognizes revenue associated with
the service arrangement ratably over the service period and rec-
ognizes revenue associated with the operating leases over the
lease term. In 2003, we decided to sell the TGN (see Note 16).
We will continue to recognize revenue through the disposal date.
At September 30, 2003, accounts receivable and other long-
term receivables included retainage provisions of $174.5 million,
of which $100.7 million remained unbilled. At September 30,
2002, accounts receivable and other long-term receivables
included retainage provisions of $164.8 million, of which $84.9
million remained unbilled. These retention provisions consist
primarily of electronics contracts, fire protection contracts as
well as transportation, water and environmental-related con-
tracts. These retention provisions become due upon contract
completion and acceptance. Of the balance of $174.5 million at
September 30, 2003, $138.8 million is included in accounts
receivable and is expected to be collected during fiscal 2004.
Research and Development Research and development expen-
ditures are expensed when incurred and are included in cost of
sales. Customer-funded research and development are costs
incurred by Tyco that are reimbursed by customers. There is no
net impact on research and development expense on the Con-
solidated 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 For the Company’s non-U.S.
subsidiaries which account in a functional currency other than
U.S. dollars and do not operate in highly inflationary environ-
ments, assets and liabilities 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 com-
ponent of accumulated other comprehensive income (loss)
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 in any period presented,
are included in net income.
Cash and Cash Equivalents All highly liquid investments pur-
chased 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 con-
struction projects. The amount of restricted cash in collateral
was $444.8 million (of which $141.8 million is included in cur-
rent assets and $303.0 million is included in long-term assets)
and $196.2 million (all of which is included in current assets)
at September 30, 2003 and 2002, respectively.
Allowance for Doubtful Accounts The allowance for doubtful
accounts receivable reflects our best estimate of probable losses
inherent in our receivable portfolio determined on the basis of
historical experience, specific allowances for known troubled
accounts and other currently available evidence.
Inventories Inventories are recorded at the lower of cost (prima-
rily 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, 2003, 2002 and 2001, the
Company capitalized interest of $25.2 million, $100.1 million
and $76.3 million, respectively. The decrease in capitalized inter-
est in fiscal 2003 is due to the completion of construction of the
TGN. The straight-line method of depreciation is used over the
estimated useful lives of the related assets as follows:
Buildings and related improvements 5to 50 years
Leasehold improvements Remaining term of the lease
Subscriber systems 10 to 14 years
Other plant, machinery, equipment
and furniture and fixtures 2to 20 years
As expenditures were incurred to build the TGN, the costs were
classified within the Consolidated Balance Sheets as Construction
in Progress
— Tyco Global Network. As certain geographic seg-
ments of the TGN were completed and available for capacity
sales, the costs of that segment were removed from construction
in progress and reclassified to placed in service. The portion of
the TGN that was placed in service is recorded within the
Consolidated Balance Sheet as Tyco Global Network
— placed in
service at September 30, 2002 (see Note 28). As of September 30,
2003, the TGN had been impaired and entirely written-off (see
Note 6).
TYCO INTERNATIONAL LTD.