ADT 2011 Annual Report Download - page 189

TYCO INTERNATIONAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. Basis of Presentation and Summary of Significant Accounting Policies (Continued)
While the Company does not expect situations where VSOE is not available for sales of security
systems and services, if such cases were to arise the Company would follow the selling price hierarchy
to allocate arrangement consideration.
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.
Accounts receivable and other long-term receivables included retainage provisions of $62 million at
September 30, 2011 and September 24, 2010, of which $44 million and $45 million were unbilled,
respectively. These retainage provisions consist primarily of fire protection contracts and become due
upon contract completion and acceptance. As of September 30, 2011 the retainage provision included
$49 million that is expected to be collected during fiscal 2012.
Research and Development—Research and development expenditures are expensed when incurred
and are included in cost of product sales, which amounted to $147 million, $131 million and
$116 million for 2011, 2010 and 2009, 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 $206 million, $164 million and $131 million for 2011, 2010
and 2009, respectively.
Acquisition Costs—Acquisition costs are expensed when incurred and are included in selling,
general and administrative expenses. See Note 5.
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 dividends declared in Swiss
francs through April 2011 and the impact of foreign currency derivatives related to operating activities,
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.
86 2011 Financials