ADT 2002 Annual Report Download - page 177

Tyco’s involvement in asbestos cases has been limited because our subsidiaries did not mine or
produce asbestos. Furthermore, in our experience, a large percentage of these claims were never
substantiated and have been dismissed by the courts. Our vigorous defense of these lawsuits has
resulted in judgments in our favor in all cases tried to verdict. We have not suffered an adverse verdict
in a trial court proceeding related to asbestos claims.
When appropriate, we settle claims. However, the total amount paid to date to settle and defend
all asbestos claims has been immaterial. As of September 30, 2002, there were approximately 11,000
asbestos liability cases pending against us and our subsidiaries.
We believe that we and our subsidiaries have substantial indemnification protection and insurance
coverage, subject to applicable deductibles, with respect to asbestos claims. These indemnitors and the
relevant carriers typically have been honoring their duty to defend and indemnify. We believe that we
have valid defenses to these claims and intend to continue to defend them vigorously. Additionally,
based on our historical experience in asbestos litigation and an analysis of our current cases, we believe
that we have adequate amounts accrued for potential settlements and judgments in asbestos-related
litigation. While it is not possible at this time to determine with certainty the ultimate outcome of these
asbestos-related proceedings, we believe that the final outcome of all known and anticipated future
claims, after taking into account our substantial indemnification rights and insurance coverage, will not
have a material adverse effect on our results of operations, financial position or cash flows.
Backlog
At September 30, 2002, we had a backlog of unfilled orders of $11,015.5 million, compared to a
backlog of $11,084.6 million at September 30, 2001. We expect that approximately 76% of our backlog
at September 30, 2002 will be filled during fiscal 2003. Backlog by reportable industry segment is as
follows ($ in millions):
September 30,
2002 2001
(restated)
Fire and Security Services .......................... $ 6,691.5 $ 6,163.4
Engineered Products and Services .................... 1,873.4 2,023.0
Electronics ..................................... 2,076.5 2,719.9
Healthcare ..................................... 239.7 85.5
Plastics and Adhesives ............................. 134.4 92.8
$11,015.5 $11,084.6
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 recurring
revenue in force at September 30, 2002 and 2001 is $3,483.9 million and $3,099.6 million, respectively.
Within the Fire and Security Services segment, backlog increased primarily due to an increase in
recurring revenue in force as a result of growth in certain geographies in the ADT dealer program,
offset in part by the curtailment, and in certain end-markets, the termination of the ADT dealer
program. Backlog also increased due to an increase at our U.K. Fire Protection business and the
acquisition of Sensormatic, which resulted in an addition of approximately $57 million to backlog.
Fiscal 2002 and 2001 backlog decreased slightly as a result of excluding backlog related to other Tyco
businesses.
Backlog for Engineered Products and Services decreased slightly due to contract cancellations in
the non-residential, long-term construction market, partially offset by the impact of acquisitions. Fiscal
2001 backlog for this segment has been increased by $175.1 million as a result of certain long-term
contracts not previously reported offset by an adjustment to reflect net revenues instead of gross
revenues at Tyco Infrastructure Services. Of the $643.4 million decrease within the Electronics segment,
backlog decreased approximately $500 million as there were no new contracts for undersea cable
communication systems signed in fiscal 2002 as a result of the downturn in the telecommunications
industry. Backlog also decreased in the electronics components group due to the cancellation and/or
delay of orders by customers primarily in end-markets including the communications, computer and
consumer electronics industries. Backlog in the Healthcare segment represents unfilled orders, which, in
the nature of the business, are normally shipped shortly after purchase orders are received. We do not
view backlog in the Healthcare segment to be a significant indicator of the level of future sales activity.
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