ADT 2003 Annual Report Download - page 55

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Tyco is involved in various stages of investigation and cleanup
related to environmental remediation matters at a number of
sites. The ultimate cost of site cleanup is difficult to predict
given the uncertainties regarding the extent of the required
cleanup, the interpretation of applicable laws and regulations
and alternative cleanup methods. As of September 30, 2003,
Tyco concluded that it was probable that it would incur remedial
costs in the range of approximately $142 million to $451 mil-
lion. As of September 30, 2003, Tyco concluded that the best
probable estimate within this range is approximately $270 mil-
lion, of which $32 million is included in accrued expenses and
other current liabilities and $238 million is included in other
long-term liabilities on the Consolidated Balance Sheet. In view
of the Company’s financial position and reserves for environ-
mental matters of $270 million, the Company has concluded
that any potential payment of such estimated amounts will not
have a material adverse effect on its financial position, annual
results of operations or liquidity.
Like many other companies, Tyco and some of our sub-
sidiaries are named as defendants in personal injury lawsuits
based on alleged exposure to asbestos-containing materials.
Consistent with the national trend of increased asbestos-related
litigation, we have observed an increase in the number of these
lawsuits in the past several years. The majority of these cases
have been filed against subsidiaries in our Healthcare division
and our Engineered Products and Services division. A limited
number of the cases allege premises liability, based on claims
that individuals were exposed to asbestos while on a subsidiary’s
property. Some of the cases involve product liability claims,
based principally on allegations of past distribution of heat-
resistant industrial products incorporating asbestos or the past
distribution of industrial valves that incorporated asbestos-
containing gaskets or packing. Each case typically names
between dozens to hundreds of corporate defendants.
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 vig-
orous 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, 2003, there were approx-
imately 14,000 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 hon-
oring 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 adverse 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 sub-
stantial indemnification rights and insurance coverage, will not
have a material adverse effect on our financial position, annual
results of operations or liquidity.
BACKLOG
At September 30, 2003, we had a backlog of unfilled orders of
$11,533.9 million, compared to a backlog of $11,015.5 million
at September 30, 2002. We expect that approximately 83% of
our backlog at September 30, 2003 will be filled during fiscal
2004. Backlog by reportable industry segment is as follows
($ in millions):
SEPTEMBER 30, 2003 2002
Fire and Security $««6,964.7 $««6,691.5
Electronics 2,071.0 2,076.5
Engineered Products and Services 2,061.4 1,873.4
Healthcare 327.4 239.7
Plastics and Adhesives 109.4 134.4
$11,533.9 $11,015.5
Backlog for Fire and Security 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, 2003 and 2002 is
$3,606.7 million and $3,483.9 million, respectively. Within the
Fire and Security segment, backlog increased primarily due to
favorable foreign currency exchange rates.
Within the Electronics segment, backlog remained level.
Backlog for Engineered Products and Services increased prima-
rily due to several new contracts and, to a lesser extent, due to
favorable foreign currency exchange rates. Backlog in the Health-
care and Plastics and Adhesives segments represents unfilled
orders, which, in the nature of the businesses, are normally
shipped shortly after purchase orders are received.We do not view
backlog in the Healthcare and Plastics and Adhesives segments
to be a significant indicator of the level of future sales activity.
TYCO INTERNATIONAL LTD.