ADT 2005 Annual Report Download - page 133

Compliance Matters
In 2003 an allegation was brought to our attention that during the period from 1999 through 2003
certain improper payments were made by a non-U.S. subsidiary of Tyco with 2004 revenue of
$40 million. With the assistance of outside counsel, we conducted an internal investigation into this
allegation to determine whether certain payments were correctly recorded in the books and records of
the subsidiary. We have taken remedial steps and have reported the results of our investigation to the
U.S. Department of Justice (‘‘DOJ’’) and the SEC. We are cooperating with their inquiries.
On March 29, 2005 and August 9, 2005, Tyco reported to the DOJ and the SEC the investigative
steps and remedial measures that it has taken in response to a number of recent allegations of
improper payments. Tyco also informed the DOJ and the SEC that it has retained outside counsel to
perform a company-wide baseline review of its policies, controls and practices with respect to
compliance with the Foreign Corrupt Practices Act, that it would continue to make periodic progress
reports to them, and that it would present its factual findings upon conclusion of the baseline review.
At this time, Tyco cannot predict the outcome of its disclosures of these matters reported to
regulatory and law enforcement authorities and therefore cannot estimate the range of potential loss or
extent of risk, if any, that may result from an adverse resolution of any or all of these matters.
Other Matters
The Company is a defendant in a number of other pending legal proceedings incidental to present
and former operations, acquisitions and dispositions. The Company does not expect the outcome of
these proceedings, either individually or in the aggregate, to have a material adverse effect on its
financial position, results of operations or cash flows.
Backlog
At September 30, 2005, we had a backlog of unfilled orders of $13.6 billion, compared to a
backlog of $13.0 billion at September 30, 2004. We expect that approximately 75% of our backlog at
September 30, 2005 will be filled during 2006. Backlog by reportable industry segment at September 30
is as follows ($ in millions):
2005 2004
Fire and Security ................................... $ 6,732 $ 6,726
Engineered Products and Services ....................... 4,007 3,469
Electronics ........................................ 2,591 2,454
Healthcare ........................................ 272 280
Corporate and Other(1) ............................... — 120
$13,602 $13,049
(1) 2004 includes the TGN business which was classified as held for sale at September 30, 2004 and sold during 2005.
Within Fire and Security, backlog remained flat in part due to increased bookings within Fire
Protection in North America, offset by the continued recognition of deferred revenues on leased
security systems as a result of the transition to a direct-consumer sales model in 2003. Backlog for Fire
and Security includes recurring revenue-in-force, which represents twelve months’ fees for monitoring
and maintenance services under contract in the security business. The amount of recurring
revenue-in-force at September 30, 2005 and September 30, 2004 was $3,550 million and $3,559 million,
respectively. Within Engineered Products and Services, backlog increased at Infrastructure Services as a
result of projects in Venezuela and Canada, as well as expanding sectors in Flow Control Asia and
North America. Favorable changes in foreign currency exchange rates also contributed to the increase.
2005 Financials 57