ADT 2001 Annual Report Download - page 36

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TYCO INDUSTRIAL BACKLOG
At September 30, 2001, Tyco Industrial had a backlog of unfilled
orders of $10,999.1 million, compared to a backlog of
$10,418.2 million as of September 30, 2000. We expect that
approximately 76% of our backlog at September 30, 2001 will be
filled during Fiscal 2002. Backlog by reportable industry seg-
ment is as follows:
SEPTEMBER 30,
($ IN MILLIONS) 2001 2000
Fire and Security Services $ 8,010.9 $ 4,888.3
Electronics 1,943.9 2,497.1
Telecommunications 865.9 2,941.7
Healthcare and Specialty Products 178.4 91.1
$10,999.1 $10,418.2
Backlog for Fire and Security Services includes recurring
“revenue in force,” which represents one year’s fees for security
monitoring and maintenance services under contract. The
amount of backlog as of September 30, 2000 has been restated
to include recurring revenue in force at that date of $2,203.4 mil-
lion. The amount of recurring revenue in force at September 30,
2001 is $3,099.6 million. Within the Fire and Security Services
segment, backlog increased due to the following: the deferral of
$1,453.5 million of net revenue as a result of the adoption of
SAB 101, an increase in services contracts of the security busi-
ness, an increase in contract bookings at Tyco Infrastructure
and, to a lesser extent, the effect of acquisitions.
Within the Electronics segment, backlog decreased due to
the cancellation and/or delay of orders by customers in certain
end-markets, such as the computer and consumer electronics
and communications industries. The decrease in backlog within
the Telecommunications segment reflects generally the down-
turn in the telecommunications industry and specifically a
decrease in third-party contracts for undersea communications
systems, partially offset by contracts signed for capacity sales on
the TGN. In addition, a $710.5 million contract previously
booked was removed from backlog pending customer financing.
The increase in backlog in Healthcare and Specialty Products is
due to the deferral of $71.6 million of net revenue as a result of
the adoption of SAB 101. Backlog in the Healthcare and Specialty
Products segment represents unfilled orders which, in the
nature of the business, are normally shipped shortly after pur-
chase orders are received. We do not view backlog in the health-
care industry to be a significant indicator of the level of future
sales activity.
TYCO CAPITAL
Tyco Capital maintains committed bank lines of credit aggregat-
ing $8.5 billion to provide back-stop support of its commercial
paper borrowings and approximately $252.4 million of local
bank lines to support international operations. Tyco Capital’s
primary bank line agreements include a minimum equity
requirement of $3.8 billion. Included as part of Tyco Capital’s
securitization programs are committed asset-backed commer-
cial paper programs in the U.S. and Canada aggregating approx-
imately $4.6 billion. To ensure uninterrupted access to capital at
competitive interest rates, Tyco Capital maintains strong invest-
ment grade ratings.
As part of Tyco Capital’s continuing program of accessing
the public and private asset-backed securitization markets as
an additional liquidity source, general equipment finance
receivables of $2.2 billion were securitized during the Four
Month Period.
As part of Tyco Capital’s initiative to address businesses
that did not fit strategically, or portfolios that did not meet prof-
itability requirements, during the Four Month Period, approxi-
mately $1.8 billion of assets were sold and a total of $3.6 billion
of managed assets were either sold, liquidated or placed in liq-
uidation status. In addition, Tyco Capital received $898.3 million
in capital contributions from Tyco Industrial to partially offset
the impact to tangible capital from push-down accounting. As
a result, tangible equity to managed assets and total debt to
tangible equity were 8.55% and 8.13%, respectively.
QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
TYCO INDUSTRIAL
We are subject to market risk associated with changes in inter-
est rates, foreign currency exchange rates and certain commod-
ity prices. In order to manage the volatility relating to our more
significant market risks, we enter into forward foreign currency
exchange contracts, cross-currency swaps, foreign currency
options, commodity swaps and interest rate swaps. We do not
anticipate any material changes in our primary market risk
exposures in Fiscal 2002.
We utilize risk management procedures and controls in exe-
cuting derivative financial instrument transactions. We do not
execute transactions or hold derivative financial instruments for
trading purposes. Derivative financial instruments related to
interest rate sensitivity of debt obligations, intercompany
cross-border transactions and anticipated non-functional cur-
rency cash flows, as well as commodity price exposures, are used
with the goal of mitigating a significant portion of these expo-
sures when it is cost effective to do so. Counter-parties to deriv-
ative financial instruments are limited to financial institutions
with at least an AA long-term credit rating.