ADT 2010 Annual Report Download - page 170

TYCO INTERNATIONAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation and Summary of Significant Accounting Policies (Continued)
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 24, 2010 and September 25, 2009, accounts receivable and other long-term
receivables included retainage provisions of $62 million and $66 million, respectively, of which
$45 million and $46 million are unbilled, respectively. These retainage provisions consist primarily of
fire protection contracts and become due upon contract completion and acceptance. As of
September 24, 2010 the retainage provision included $50 million that is expected to be collected during
fiscal 2011.
Research and Development—Research and development expenditures are expensed when incurred
and are included in cost of product sales, which amounted to $131 million, $116 million and
$125 million for 2010, 2009 and 2008, 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 $164 million, $131 million and $142 million for 2010, 2009
and 2008, 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 in 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.
Cash and Cash Equivalents—All highly liquid investments with maturities of three months or less
from the time of purchase are considered to be cash equivalents.
Allowance for Doubtful Accounts—The allowance for doubtful accounts receivable reflects the best
estimate of probable losses inherent in Tyco’s 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 (primarily first-in, first-out) or market
value.
Property, Plant and Equipment, Net—Property, Plant and Equipment, net is recorded at cost less
accumulated depreciation. Depreciation expense for 2010, 2009 and 2008 was $654 million, $610 million
and $620 million, respectively. Maintenance and repair expenditures are charged to expense when
82 2010 Financials