Johnson Controls 2011 Annual Report Download - page 62

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62
million at September 30, 2011 and 2010, respectively. Amounts included within other current liabilities were $730
million and $639 million at September 30, 2011 and 2010, respectively.
Revenue Recognition
The Company’s building efficiency business recognizes revenue from certain long-term contracts over the
contractual period under the percentage-of-completion (POC) method of accounting. This method of accounting
recognizes sales and gross profit as work is performed based on the relationship between actual costs incurred and
total estimated costs at completion. Recognized revenues that will not be billed under the terms of the contract until
a later date are recorded in unbilled accounts receivable. Likewise, contracts where billings to date have exceeded
recognized revenues are recorded in other current liabilities. Changes to the original estimates may be required
during the life of the contract and such estimates are reviewed monthly. Sales and gross profit are adjusted using the
cumulative catch-up method for revisions in estimated total contract costs and contract values. Estimated losses are
recorded when identified. Claims against customers are recognized as revenue upon settlement. The amount of
accounts receivable due after one year is not significant. The use of the POC method of accounting involves
considerable use of estimates in determining revenues, costs and profits and in assigning the amounts to accounting
periods. The periodic reviews have not resulted in adjustments that were significant to the Company’s results of
operations. The Company continually evaluates all of the assumptions, risks and uncertainties inherent with the
application of the POC method of accounting.
The building efficiency business enters into extended warranties and long-term service and maintenance agreements
with certain customers. For these arrangements, revenue is recognized on a straight-line basis over the respective
contract term.
The Company’s building efficiency business also sells certain heating, ventilating and air conditioning (HVAC) and
refrigeration products and services in bundled arrangements, where multiple products and/or services are involved.
In accordance with ASU No. 2009-13, ―Revenue Recognition (Topic 605): Multiple-Deliverable Revenue
Arrangements – A Consensus of the FASB Emerging Issues Task Force,‖ the Company divides bundled
arrangements into separate deliverables and revenue is allocated to each deliverable based on the relative selling
price method. Significant deliverables within these arrangements include equipment, commissioning, service labor
and extended warranties. In order to estimate relative selling price, market data and transfer price studies are
utilized. Approximately four to twelve months separate the timing of the first deliverable until the last piece of
equipment is delivered, and there may be extended warranty arrangements with duration of one to five years
commencing upon the end of the standard warranty period.
In all other cases, the Company recognizes revenue at the time title passes to the customer or as services are
performed.
Research and Development Costs
Expenditures for research activities relating to product development and improvement are charged against income as
incurred and included within selling, general and administrative expenses in the consolidated statement of income.
Such expenditures for the years ended September 30, 2011, 2010 and 2009 were $876 million, $723 million and
$767 million, respectively.
A portion of the costs associated with these activities is reimbursed by customers and, for the fiscal years ended
September 30, 2011, 2010 and 2009 were $366 million, $315 million and $431 million, respectively.
Earnings Per Share
Basic earnings per share are computed by dividing net income by the weighted average number of common shares
outstanding. Diluted earnings per share are computed by dividing net income by diluted weighted average shares
outstanding. Diluted weighted average shares include the dilutive effect of common stock equivalents which would
arise from the exercise of stock options and any outstanding Equity Units and convertible senior notes as of the
beginning of the period, for the years ended September 30, 2011 and 2010. However, dilutive shares due to stock
options, Equity Units and convertible senior notes were not included in the computation of diluted net loss per
common share for the year ended September 30, 2009, since to do so would decrease the loss per share. See Note
12, ―Earnings per Share,‖ of the notes to consolidated financial statements for the calculation of earnings per share.