ADT 2009 Annual Report Download - page 182

TYCO INTERNATIONAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation and Summary of Significant Accounting Policies (Continued)
Non-refundable fees received in connection with the initiation of a monitoring contract, along with
associated direct and incremental selling costs, are deferred and amortized over the estimated life of
the customer relationship.
While the Company does not expect situations where fair value cannot be objectively determined
for sales of security systems and services, if such cases were to arise, the Company’s policy is to
recognize revenue for all elements over the contract life.
Revenue from the sale of services is recognized as services are rendered. Customer 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, large security intruder systems and
other construction-related projects are recorded primarily under the percentage-of-completion method.
Profits recognized on contracts in process are based upon estimated contract revenue and related total
cost of the project at completion. The extent of progress toward completion is generally measured
based on the ratio of actual cost incurred to total estimated cost at completion. Revisions to cost
estimates as contracts progress have the effect of increasing or decreasing profits each period.
Provisions for anticipated losses are made in the period in which they become determinable. Estimated
warranty costs are included in total estimated contract costs and are accrued over the construction
period of the respective contracts under percentage-of-completion accounting.
At September 25, 2009 and September 26, 2008, accounts receivable and other long-term
receivables included retainage provisions of $65 million and $70 million, respectively, of which
$46 million and $51 million are unbilled, respectively. These retainage provisions consist primarily of
fire protection contracts and become due upon contract completion and acceptance. As of
September 25, 2009 the retainage provision included $64 million that is expected to be collected during
fiscal 2010.
Research and Development—Research and development expenditures are expensed when incurred
and are included in cost of product sales, which amounted to $118 million, $127 million and
$120 million for 2009, 2008 and 2007, respectively. Research and development expenses include salaries,
direct costs incurred and building and overhead expenses.
Advertising—Advertising costs are expensed when incurred and are included in selling, general and
administrative expenses, which amounted to $131 million, $142 million and $132 million for 2009, 2008
and 2007, respectively.
Translation of Foreign Currency—For the Company’s non-U.S. subsidiaries that account in a
functional currency other than U.S. dollars, assets and liabilities are translated into U.S. dollars using
year-end exchange rates. Revenue and expenses are translated at the average exchange rates in effect
during the year. Foreign currency translation gains and losses are included as a component of
accumulated other comprehensive (loss) income within shareholders’ equity.
Gains and losses resulting from foreign currency transactions, including the impact of foreign
currency derivatives related to operating activities and dividends declared in Swiss francs, are reflected
in selling, general and administrative expenses and other expense, net, respectively.
90 2009 Financials