ADT 2005 Annual Report Download

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2005 ANNUAL REPORT

Table of contents

  • Page 1
    2005 ANNUAL REPORT

  • Page 2
    ... key financial metrics. Building Teams & Corporate Culture: Attract and retain employees who demonstrate the highest standards of excellence, integrity, and accountability. NET REVENUE BY SEGMENT (In US$ Billions) Electronics Fire & Security Healthcare Engineered Products & Services Total = $39...

  • Page 3
    ...Tyco's businesses to the next level in 2006. On behalf of our 250,000 employees around the globe, we appreciate your continued support. SEGMENT OVERVIEWS Electronics Fire & Security Healthcare Engineered Products & Services EDWARD D. BREEN Chairman and Chief Executive Officer Tyco International...

  • Page 4
    ... telecommunications networks and are the leading U.S. manufacturer of electronic power system products. Our 88,000 employees in 54 countries include a well-deployed global sales force, world-class customer service teams, and an unparalleled global distribution network. While focusing on growth...

  • Page 5
    ...-grade ratings by stabilizing the balance sheet, embarked on aggressive cost-cutting and operational excellence initiatives, and made solid progress toward building world-class governance standards and restoring the company's reputation. What the managers and employees of the company achieved...

  • Page 6
    ...SEGMENT HIGHLIGHTS We help protect more than 5 million homes and 2 million commercial buildings worldwide. Tyco Fire & Security is the worldwide leader in fire protection and electronic security solutions. With more than 90,000 employees in over 100 countries, our products and services are used to...

  • Page 7
    .... In addition, the company raised its quarterly stock dividend during 2005, delivering an incremental $700 million return of capital to shareholders annually. INVESTING FOR GROWTH 03 04 20 (In US$ Millions) 20 20 05 To help support product development and organic revenue growth, Tyco invested...

  • Page 8
    ..., new R&D research facilities, and a highly trained sales force help ensure that Tyco Healthcare's first-class products are improving patient outcomes around the world. Pictured here: Kendall's flush syringes (top right); the Endo GIA Universal stapler (right). INDUSTRIES AND MARKETS SERVED...

  • Page 9
    ... and are expected to help drive the segment's growth rate during 2006 and beyond. BALANCE SHEET STRENGTH RESEARCH & DEVELOPMENT BY SEGMENT (In US$ Millions) Electronics Healthcare Fire & Security Engineered Products & Services Total = $836 million $5,429 $4,623 $3,201 03 04 20 FREE CASH FLOW...

  • Page 10
    ... divisions include Tyco Flow Control, Tyco Electrical & Metal Products, Tyco Fire & Building Products, Tyco Thermal Controls, and Tyco Infrastructure Services - with 28,000 employees in 46 countries. Tyco Engineered Products & Services is a leading supplier of metal conduit, armored electrical cable...

  • Page 11
    ... diversified healthcare companies; Tyco Electronics, the world's largest passive electronics components manufacturer; and Tyco Fire & Security and Engineered Products & Services, combined to form a global business with leading positions in residential and commercial security, fire protection, and...

  • Page 12
    ... of innovative products and services to improve the lives of millions of people around the world. We can help protect your family, your home and your employees - even in the world's tallest building. We'll give a village fresh water to drink, or a firefighter fresh air to breathe. We equip hospitals...

  • Page 13
    ... complete, sign, date and return the enclosed proxy card at your earliest convenience. On behalf of the Board of Directors and the management of Tyco, I extend our appreciation for your continued support. Yours sincerely, 7JAN200407273338 Edward D. Breen Chairman and Chief Executive Officer Tyco...

  • Page 14
    2006 Proxy Statement

  • Page 15
    ... B. Lytton Executive Vice President and General Counsel January 23, 2006 PLEASE PROMPTLY COMPLETE, SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD. THE PROXY IS REVOCABLE AND IT WILL NOT BE USED IF YOU: GIVE WRITTEN NOTICE OF REVOCATION TO THE SECRETARY AT TYCO INTERNATIONAL LTD., SECOND FLOOR, 90...

  • Page 16
    2006 Proxy Statement

  • Page 17
    ... Compensation Plan Information ...Fiscal Year-End Option Values ... BOARD COMPENSATION AND HUMAN RESOURCES COMMITTEE REPORT ON EXECUTIVE COMPENSATION ...Committee Membership and Duties ...Compensation for Fiscal Year 2005 ...Chief Executive Officer Compensation ...Certain Other Executive Officers...

  • Page 18
    ... Non-Audit Services of Independent Auditors ...OTHER MATTERS ...Costs of Solicitation ...Presentation of Financial Statements ...Registered and Principal Executive Offices ...Shareholder Proposals for the 2007 Annual General Meeting United States Securities and Exchange Commission Reports . General...

  • Page 19
    ...these materials to be sent to persons who have interests in Tyco common shares through participation in the company share funds of the Tyco retirement savings plans and employee share purchase plans. These individuals are not eligible to vote directly at the Annual General Meeting. They may, however...

  • Page 20
    ...own Tyco common shares. Registration will begin at 8:00 a.m. Eastern Time, and the Annual General Meeting will begin at 9:00 a.m. Eastern Time. You can vote in the following ways: • By Mail: If you are a holder of record, you can vote by marking, dating and signing your proxy card and returning it...

  • Page 21
    ...instruction card? It means you have multiple accounts at the transfer agent and/or with banks and stockbrokers. Please vote all of your common shares. Beneficial shareholders sharing an address who are receiving multiple copies of the proxy materials, Annual Report and Form 10-K will need to contact...

  • Page 22
    ... who wish to receive a separate copy of the Proxy Statement, Annual Report and Form 10-K, now or in the future, should submit their request to Tyco by telephone at (441) 292-8674 or by submitting a written request to Tyco Shareholder Services, Tyco International Ltd., Second Floor, 90 Pitts Bay Road...

  • Page 23
    ... meeting, the proxy card must be completed in accordance with the instructions on it and received at any one of the addresses set forth below by the times (being local times) and dates specified: In Bermuda: by 5:00 p.m. on March 8, 2006 by hand or mail at: Tyco International Ltd. Second Floor, 90...

  • Page 24
    ... reporting and disclosure; • Reviewing and approving management's strategic and business plans; • Reviewing and approving financial plans, objectives and actions, including significant capital allocations and expenditures; • Monitoring management's execution of corporate plans and objectives...

  • Page 25
    ... year. The Nominating and Governance Committee reviews the Board's organization annually and recommends appropriate changes to the Board. The Company believes the positions of Chairman of the Board and Chief Executive Officer should be held by the same person, unless circumstances dictate otherwise...

  • Page 26
    ..., periodically reviews the directors' compensation and recommends changes as appropriate. To help align Board and shareholder interests, the Board's governance principles provide that directors are required to own, at a minimum, Tyco stock or stock units equal to three times their annual retainer...

  • Page 27
    ... to our Chief Executive Officer, Chief Financial Officer and Chief Accounting Officer, as well as all other employees, as indicated above. The Guide to Ethical Conduct also meets the requirements of a code of business conduct and ethics under the listing standards of the New York Stock Exchange...

  • Page 28
    ... of the Company's environmental management system; an analysis of the Company's toxic releases from major facilities; and plans for reduction of toxins (particularly toxins that are persistent or bioaccumulative). The Company has prepared the Tyco Environmental, Health and Safety 2005 Report and the...

  • Page 29
    ...In addition, the table below lists the dates each current Board member received DSU grants during fiscal 2005 and the fair market value at the time the DSUs were granted. The DSUs were vested upon grant and are payable in the form of Tyco common shares within 30 days following termination of service...

  • Page 30
    ...date. That value per share was $28.30. Therefore, each Board member was credited with 4,241 DSUs. Under the terms of the grant agreements, each DSU is vested when granted and will be payable in the form of Tyco common shares within 30 days following termination of service as a Board member. Dividend...

  • Page 31
    ... of the Board, Chief Executive Officer and President of 3M Company. As a result of Mr. Buckley's resignation from the Board in December 2005, there is currently one vacancy on the Board, which will lapse at the 2006 Annual General Meeting. The Nominating and Governance Committee is seeking an...

  • Page 32
    ... Verizon in July 2000, Mr. Gordon fulfilled a variety of positions at Bell Atlantic Corporation, including Group President, Vice President, Marketing and Sales, and Vice President, Sales. Mr. Gordon graduated from Gettysburg College and received a M.S. from Massachusetts Institute of Technology...

  • Page 33
    ...Since 2000, Mr. York has been Chief Executive Officer of Harwinton Capital Corporation, a private investment company that he controls. From 2000 to 2003, he was the Chairman, President and Chief Executive Officer of MicroWarehouse, Inc. a computer reseller, and prior to that he was the Vice Chairman...

  • Page 34
    ... Human Resources Committee reviews and approves compensation and benefits policies and objectives, determines whether Tyco's officers, directors and employees are compensated according to these objectives, and carries out the Board's responsibilities relating to the compensation of Tyco's executives...

  • Page 35
    ..., corporate governance and global markets. When the Committee reviews a potential new candidate, the Committee looks specifically at the candidate's qualifications in light of the needs of the Board and the Company at that time, given the then-current mix of director attributes. General criteria...

  • Page 36
    ...age 53, has been our Executive Vice President and Chief Financial Officer since March 2005. Prior to joining Tyco, Mr. Coughlin served as Chief Operating Officer at Interpublic Group. He joined Interpublic from Pharmacia Corporation, where he was Chief Financial Officer for six years. Previously, he...

  • Page 37
    ...to January 2001; and Senior Vice President and General Manager, Satellite & Broadcast Network Systems, of General Instrument Corporation from May 1998 to February 2000. Richard J. Meelia-Mr. Meelia, age 56, has been Chief Executive Officer of Tyco Healthcare since January 2006 and was, prior to that...

  • Page 38
    ... and Chief Tax Officer since December 2002. Prior to joining Tyco, Mr. Evard was Vice President, Tax of United Technologies Corporation from August 2000. Prior to joining United Technologies, Mr. Evard held a number of positions at CNH Global N.V. and its predecessor company, Case Corp., including...

  • Page 39
    ... as a group (28 persons) ...(1) Director Chairman and Chief Executive Officer Director Special advisor to the Chairman and Chief Executive Officer Director President-Tyco Electronics Director Lead Director President-Tyco Engineered Products and Services Executive Vice President and General Counsel...

  • Page 40
    ... following table sets forth the information indicated for persons or groups known to the Company to be beneficial owners of more than 5% of the outstanding common shares. Name and Address of Beneficial Owner Number of Common Shares Beneficially Owned Percentage of Common Stock Outstanding on October...

  • Page 41
    ...(3) Long Term Compensation Restricted Stock/DSU (Value)(7) Shares Underlying Stock Options Name & Principal Position Year Salary Bonus All Other Compensation(8) Corporate Executive Officers Edward D. Breen ...Chairman & CEO William B. Lytton ...Executive Vice President & General Counsel...

  • Page 42
    ...-related benefits in the amount of $415 and a gross-up in the amount of $18,156 on a life insurance premium, as provided pursuant to his employment contract. Amounts set forth in the restricted stock award column represent the grant-date value ($35.80 per share) of time-based restricted stock...

  • Page 43
    ...up a portion of his deferred compensation account, Tyco previously agreed to pay, on a cost neutral basis, certain premiums payable on the life of Mr. Meelia and his spouse, with an aggregate face value of approximately $9.5 million (the ''Insurance Policy''). Tyco will recover its net investment in...

  • Page 44
    ... Officers during fiscal 2005 under the Tyco International Ltd. 2004 Stock and Incentive Plan. Individual Grants Percent of Total Options Granted Exercise to Employees in Price (4) Fiscal Year ($/Share) Name No. of Securities Underlying Options Granted(2) Expiration Date Grant Date Present Value...

  • Page 45
    ... 36 months of historical Tyco share price movement and the dividend payments. (6) On March 7, 2005, Mr. FitzPatrick voluntarily retired as Executive Vice President and Chief Financial Officer of the Company and subsequently served as Special Advisor to the Chairman and Chief Executive Officer until...

  • Page 46
    ... rates in effect at the time of his payment. Mr. FitzPatrick is currently age 51 and has three years of service. The amount shown above reflects any amounts attributable to benefits provided under a defined benefit plan maintained by his immediately preceding employer (vesting ratably each month...

  • Page 47
    ... as of three years prior to the date of his retirement and his years of service with Tyco at the time of his retirement. The following table sets forth the estimated annual benefits payable to Dr. Gromer under the pension plan for the annualized monthly salary as of three years prior to retirement...

  • Page 48
    ...pension plan in the form of a straight life annuity upon normal retirement at age 65. As a retiree, Dr. Gromer would be required to pay medical and long-term care insurance from the benefit provided under the pension plan. The compensation of Dr. Gromer covered by the pension plan is his base salary...

  • Page 49
    ...change in control and good reason are each defined in the agreement. Mr. Breen is also entitled to participate in all of our employee benefit plans available to senior executives at a level commensurate with his position, and to have premium payments made with respect to a term life insurance policy...

  • Page 50
    ... changes. A copy of the amendment is filed as an exhibit to our Annual Report on Form 10-K for the fiscal year ended September 30, 2004. The agreement provides for Mr. Lytton to serve as our Executive Vice President and General Counsel for an initial term of two years and, thereafter, for additional...

  • Page 51
    ... times his base salary and target annual bonus (or, if higher, his most recent annual bonus), to provide him a gross-up payment for any excise taxes he must pay as a result of receiving compensation that is contingent upon a change in control, to credit him with three additional years of service...

  • Page 52
    ... Lynch executes a general release in favor of Tyco, we are required to pay Mr. Lynch's base salary and target bonus for 24 months (which bonus may be payable in installments or a lump sum as determined by the administrator of the plan). In addition, Mr. Lynch could be eligible for a pro-rated annual...

  • Page 53
    ... (c) continued participation under Tyco's medical, dental and health care reimbursement account plans as in effect on the date of termination of employment (or generally comparable coverage and subject to payment of premiums applicable to active employees); (ii) pro-rated annual bonus for the year...

  • Page 54
    ...,667 restricted shares and 823,105 restricted stock units. The Tyco International Ltd. Long Term Incentive Plan (''LTIP'') allows for the grant of stock options and other equity or equity-based grants to Board members, officers and non-officer employees. Amounts shown exclude 11,986,816 outstanding...

  • Page 55
    ... a right to receive payments equivalent to dividends declared on Tyco common shares; and (v) other stock-based awards as determined by the Compensation and Human Resources Committee. The exercise price of options and stock appreciation rights would generally be fair market value on the date of grant...

  • Page 56
    ... review of management succession planning and of issues related to the Company's human resources strategies. As part of its regular oversight of compensation policies and practices, the Committee periodically reviews existing executive contracts, change in control arrangements, severance plans and...

  • Page 57
    ... Grants are generally made annually. Stock options generally permit an executive to purchase a share of Tyco stock at the exercise price, which is the fair market value, defined as the average of the high and low share price on the date of grant. Thus, options have value only if the Company's stock...

  • Page 58
    ... payment of a significant portion of executives' compensation in Tyco equity provides management with a powerful incentive to increase shareholder value over the long term. Stock option and restricted stock awards are generally reflective of position and individual contribution, taking into account...

  • Page 59
    ... Company's Engineered Products and Services segment and 20% on the performance of Tyco overall during fiscal 2005. Chief Executive Officer Compensation The Compensation and Human Resources Committee and the Nominating and Governance Committee jointly reviewed the performance of our Chief Executive...

  • Page 60
    ... Lytton, Executive Vice President and General Counsel, Richard Meelia, President of Tyco Healthcare Group, Juergen Gromer, President of Tyco Electronics, Thomas Lynch, President, Tyco Engineered Products and Services and David J. FitzPatrick, Advisor to the Chairman and Chief Executive Officer. The...

  • Page 61
    ... is responsible for any costs associated with the subsequent maintenance and sale of the home, including the payment of a service fee to the relocation company. In November 2004, in connection with being hired as the President of Tyco Engineered Products and Services, Thomas Lynch sold his home to...

  • Page 62
    ... persons are required by SEC regulations to furnish Tyco with copies of all Section 16(a) forms they file. As a matter of practice, Tyco's administrative staff assists Tyco's officers and directors in preparing initial reports of ownership and reports of changes in ownership and files those reports...

  • Page 63
    ... the financial statements with accounting principles generally accepted in the United States of America. The internal auditors are responsible to the Audit Committee and the Board for testing the integrity of the financial accounting and reporting control systems and such other matters as the Audit...

  • Page 64
    ..., nor were the reports qualified or modified as to uncertainty, audit scope or accounting principles, except that the opinion dated December 9, 2005, included an explanatory paragraph relating to the Company's change of its measurement date for its pension and post retirement plans from September 30...

  • Page 65
    ... services rendered for the audits of the consolidated financial statements of the Company, the 2005 audit of management's assessment of internal control, quarterly review of the financial statements included in Tyco's Quarterly Reports on Form 10-Q, consents, comfort letters, international filings...

  • Page 66
    ... the proxy solicitor for the Annual General Meeting for an approximate fee of $9,500. In addition to the use of the mails, certain directors, officers or employees of Tyco may solicit proxies by telephone or personal contact. Upon request, Tyco will reimburse brokers, dealers, banks and trustees, or...

  • Page 67
    ...our website at www.tyco.com or by writing to Attn: Tyco Shareholder Services, Tyco International Ltd., 90 Pitts Bay Road, Second Floor Pembroke HM 08, Bermuda. General The enclosed proxy is solicited on behalf of Tyco's Board. Unless otherwise directed, proxies held by the Chief Executive Officer or...

  • Page 68
    2006 Proxy Statement

  • Page 69
    ... Meet with the senior internal auditor, company officers, external auditors, or outside counsel, as necessary. b. c. COMPOSITION The Audit Committee shall have at least three members, each of whom shall meet the independence and experience requirements of the New York Stock Exchange, as determined...

  • Page 70
    ... in the annual report on Form 10-K. Discuss, including with the internal and outside auditor, corporate policies with respect to earnings press releases, as well as financial information and earnings guidance provided to analysts and rating agencies. Review the process for the SEC-required CEO and...

  • Page 71
    ... Conduct, and annually review and assess the adequacy of the Guide to Ethical Conduct and recommend any proposed changes to the Board. Specifically, the Audit Committee shall discuss with management, the Company's senior internal auditor, and the Senior Vice President- Corporate Governance, their...

  • Page 72
    ... effectiveness of the Company's internal control over annual and interim financial reporting, including information technology security and control. Understand the scope of internal and external auditor's review of internal control over financial reporting, and obtain reports on significant findings...

  • Page 73
    2005 FINANCIALS

  • Page 74
    2005 Financials

  • Page 75
    ... (Commission File Number) TYCO INTERNATIONAL LTD. (Exact name of registrant as specified in its charter) Bermuda 98-0390500 (Jurisdiction of Incorporation) (IRS Employer Identification No.) Second Floor, 90 Pitts Bay Road, Pembroke HM 08, Bermuda (Address of registrant's principal executive office...

  • Page 76
    ......Principal Accountant Fees and Services ...66 66 66 66 66 Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities ...Selected Financial Data ...Management's Discussion and Analysis of Financial Condition and Results of Operations ...Quantitative...

  • Page 77
    ... corporation, by ADT Limited, a public company organized under the laws of Bermuda in the 1980's with origins dating back to the United Kingdom since the early 1900's, at which time ADT Limited changed its name to Tyco International Ltd. Unless otherwise indicated, references in this Annual Report...

  • Page 78
    ... Services and Fire Protection Contracting and Services. Electronic Security Services We are the world's leading provider of electronic security products and services and event monitoring, which includes the monitoring of burglar alarms, fire alarms, medical alert systems, such as our Personal...

  • Page 79
    ... and an authorized dealer network. A separate national accounts sales force services large commercial customers. We also utilize advertising and direct mail to market our services. We provide residential electronic security services primarily in North America, Latin America, Europe, South Africa and...

  • Page 80
    ... group's products and services include: • designing, engineering and manufacturing electronic/electrical connector systems, fiber optic components, wireless devices including private radio systems and radar sensors, heat shrink products, circuit protection devices, magnetic devices, wire and cable...

  • Page 81
    ...' products and services include: designing, manufacturing and installing undersea cable communications systems and servicing and maintaining major undersea cable networks. Tyco Electronics operates in highly competitive markets. The competition experienced across product lines from other companies...

  • Page 82
    ... The Respiratory Division develops, manufactures and markets an extensive line of products and services that monitor oxygen saturation levels in the blood (pulse oximetry), help facilitate and monitor anesthesia, diagnose and treat respiratory disease, and provide life support for critically ill...

  • Page 83
    ...-market'' approach, the Retail Division helps retailers such as Wal-Mart, Target, Kroger, Albertson's, CVS, Loblaw, Dollar General and Family Dollar manage their categories and build their own store brand presence with the high-quality products consumers demand. Tyco Healthcare's competitors include...

  • Page 84
    ... and CENTRAL SPRAYSAFE brand names. In North America, a complete line of steel sprinkler pipe is manufactured by Tyco Electrical & Metal Products (Allied Tube & Conduit), thus enabling Tyco to offer a complete line of fire protection systems and services. Tyco Fire & Building Products also produces...

  • Page 85
    ... of customers and applications ranging from automotive, fire protection, security and safety containment, recreational equipment, commercial construction and traffic control systems. Electrical & Metal Products competes with multiple national and international competitors on the basis of price...

  • Page 86
    ... and Trademarks We own a portfolio of patents, which principally relate to electrical and electronic products, healthcare products, fire protection devices, electronic security systems, flow control products, tubing and building and cable products. We also own a portfolio of trademarks and are...

  • Page 87
    ..., results of operations or cash flows. Available Information Tyco is required to file annual, quarterly and special reports, proxy statements and other information with the Securities and Exchange Commission (''SEC''). Investors may read and copy any document that Tyco files, including this Annual...

  • Page 88
    ... and Chief Executive Officer and current General Counsel are named defendants in a number of purported class actions alleging violations of certain disclosure provisions of the federal securities laws. Tyco, certain of our current and former employees, some members of our former senior corporate...

  • Page 89
    ...tax authorities, including the IRS, could result in additional tax payments for prior periods. Tyco's and our subsidiaries' income tax returns are periodically examined by various tax authorities. Tyco is currently under audit by the Internal Revenue Service (''IRS'') for the years 1997 through 2000...

  • Page 90
    ...on our results of operations and cash flows and the market price of our publicly traded securities. Our senior corporate management team is required to devote significant attention to matters arising from actions of prior management. We replaced our senior corporate executives with a new team during...

  • Page 91
    ... of our products sold by Engineered Products and Services. Our operations expose us to the risk of material environmental liabilities, litigation and violations. We are subject to numerous foreign, federal, state and local environmental protection and health and safety laws governing, among other...

  • Page 92
    ... exposures as an integral part of our overall risk management program. In some cases, we purchase hedges or enter into contracts to insulate our results of operations from these fluctuations. Nevertheless, changes in currency exchange rates, commodity prices and interest rates may have a material...

  • Page 93
    ... the costs of ADT's contracts and related customer relationships purchased through the ADT dealer program based on the estimated life of the customer relationships. Internally generated residential and commercial account pools are similarly amortized. If the attrition rates were to rise Tyco may...

  • Page 94
    ...., a Massachusetts corporation, by ADT Limited (a public company that had been located in Bermuda since the 1980's with origins dating back to the United Kingdom since the early 1900's), as a result of which ADT changed its name to Tyco International Ltd. and became the parent to the Tyco group. In...

  • Page 95
    ... federal or state securities laws, would not automatically be enforceable in Bermuda. As a Bermuda company, Tyco is governed by the Companies Act 1981 of Bermuda, which differs in some material respects from laws generally applicable to United States corporations and shareholders, including, among...

  • Page 96
    ... as well as sales and marketing, engineering and administrative offices. Fire and Security operates through a network of offices located in North America, Central America, South America, Europe, the Middle East, the Asia-Pacific region and South Africa. Our Fire and Security manufacturing facilities...

  • Page 97
    ..., executive compensation, Tyco's and TyCom's finances and TyCom's business prospects. On February 18, 2005, the Company moved to dismiss the consolidated securities class action complaint. On September 2, 2005, the United States District Court for the District of New Hampshire granted in part and...

  • Page 98
    ... former executives; their improper use of our funds for personal benefit and their improper self-dealing in real estate. On June 10, 2005, the Company moved to dismiss in part the Second Amended Complaint, which motion remains pending before the Court. As previously reported in our periodic filings...

  • Page 99
    ... Court for the Southern District of Florida, Stevenson v. Tyco International Ltd., et. al. Plaintiff names as additional defendants our current Chief Executive Officer, Edward Breen, our former Chief Financial Officer, David FitzPatrick, our current Executive Vice President and General Counsel...

  • Page 100
    ... al., was filed on September 30, 2003 in the United States District Court for the Southern District of New York. The plaintiffs purport to be former executives of U.S. Surgical who traded their U.S. Surgical stock options for Tyco International, Ltd. stock options when Tyco acquired U.S. Surgical on...

  • Page 101
    ...Kozlowski, United States District Court, Southern District of New York, No. 02-CV-7317, filed September 12, 2002, Amended April 1, 2003. As previously reported in our periodic filings, we filed a civil complaint against our former Chairman and Chief Executive Officer for breach of fiduciary duty and...

  • Page 102
    ... Tyco International, Ltd. v. L. Dennis Kozlowski and Mark H. Swartz, United States District Court Southern District of New York, No. 02-CV-9705, filed December 6, 2002. As previously disclosed in our periodic filings, we filed a civil complaint against our former Chairman and Chief Executive Officer...

  • Page 103
    ... reported in our periodic filings, we filed a civil complaint against our former Executive Vice President and Chief Corporate Counsel for breach of fiduciary duty and other wrongful conduct. On October 21, 2002, in a related proceeding, Mr. Belnick commenced an arbitration proceeding in New York...

  • Page 104
    ... patent infringement action filed on June 19, 2000 in the United States District Court for the Central District of California. Nellcor is a subsidiary of Tyco. Nellcor alleges that Masimo infringed one Nellcor patent related to pulse oximeters, which are medical devices used to measure blood...

  • Page 105
    ... Healthcare Group LP filed on November 22, 2005. In all nine complaints the putative class representatives, on behalf of themselves and others, seek to recover overcharges they allege they paid for pulse oximetry products as a result of anticompetitive conduct by Nellcor in violation of the federal...

  • Page 106
    ... effect on the Company's financial position, results of operations or cash flows. In June 2005, the Wisconsin Department of Natural Resources issued a Notice of Violation to Tyco Safety Products, a subsidiary within the Tyco Fire and Security business segment, concerning self-reported air permit...

  • Page 107
    ... II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The number of registered holders of Tyco's common shares at December 6, 2005 was 46,928. Tyco common shares are listed and traded on the New York Stock Exchange (''NYSE'') and the...

  • Page 108
    .... This selected financial data should be read in conjunction with Tyco's Consolidated Financial Statements and related notes included elsewhere in this Annual Report as well as the section of this Annual Report titled Item 7. Management's Discussion and Analysis of Financial Condition and Results of...

  • Page 109
    ... In 2001, Tyco changed its revenue recognition accounting policy to conform to the requirements of Staff Accounting Bulletin No. 101 issued by the Staff of the Securities and Exchange Commission. As a result, Tyco recorded a cumulative effect adjustment of $654 million, net of income taxes. In 2001...

  • Page 110
    ... Operations.'' We are continuing to assess the strategic fit of our various businesses and are considering additional divestitures where businesses do not align with our long term vision. In 2005, we continued to utilize cash to fund internal growth, strengthen the balance sheet and return capital...

  • Page 111
    ...in the Company's segment reporting. The operating results of the TGN are presented within Corporate and Other through the date of its disposal in the third quarter of 2005. Information for 2003 has been reclassified to reflect the transfer of Tyco's Precision Interconnect business from Healthcare to...

  • Page 112
    ... is included in cost of sales related primarily to product warranty reserves and the dismantlement of customers' ADT security systems, and $120 million is included in selling, general and administrative expenses related primarily to uncollectible accounts receivable, internal investigation fees, as...

  • Page 113
    ...to 2004 as the decrease in product revenue was offset by an increase in service revenue. Revenue from product sales includes sales and installation of security, fire protection and other systems. Net revenue increased due to favorable changes in foreign currency exchange rates ($274 million) and, to...

  • Page 114
    ... and industrial and commercial markets. This growth was partially offset by a decrease in sales of Power Systems products in North America and in our Electrical Contracting Services, which was divested in September 2004. Additionally, favorable changes in foreign currency rates ($560 million...

  • Page 115
    ... of $278 million in Power Systems, Electrical Contracting Services and the Printed Circuit Group, restructuring credits of $72 million, of which $20 million is included in cost of sales, related primarily to changes in estimates of severance and facility exit costs recorded in prior years and...

  • Page 116
    ... $1 million for adjustments to accrual balances related to workers' compensation, which were changes in estimates recorded in connection with the Company's intensified internal audits, detailed controls and operating reviews and as a result of applying management's judgments and estimates. 40 2005...

  • Page 117
    ...of steel and other raw materials. In addition, Flow Control and, to a lesser extent, Tyco Fire & Building Products experienced growth in the industrial and commercial construction markets. Favorable changes in foreign currency exchange rates ($167 million) also contributed to the increase in revenue...

  • Page 118
    ... points. During 2003, we recorded charges totaling $56 million, which includes charges of $32 million related to changes in estimates recorded in connection with the Company's intensified internal audits, detailed controls and operating reviews, and as a result of applying management's judgments...

  • Page 119
    ... Expense, Net On September 12, 2002, indictments were filed in the Supreme Court of the State of New York against Mr. L. Dennis Kozlowski, our former Chairman and Chief Executive Officer, and Mr. Mark H. Swartz, our former Chief Financial Officer and director (together, the ''Defendants''), alleging...

  • Page 120
    ... liabilities on the Consolidated Balance Sheets as payment is not expected within one year. The Company and its subsidiaries' income tax returns are periodically examined by various tax authorities. The Company is currently under audit by the IRS for the years 1997 to 2000. In connection with such...

  • Page 121
    ...reported as discontinued operations within Fire and Security, Plastics and Adhesives and Engineered Products and Services. The Company reported losses on sale or additional impairments to write the carrying value of such assets down to their estimated fair value of $56 million ($55 million after tax...

  • Page 122
    ..., Engineered Products and Services, Fire and Security and Electronics for an aggregate cost of $44 million in cash, net of $1 million of cash acquired. These acquisitions were funded utilizing cash from operations. The results of operations of the acquired companies have been included in Tyco...

  • Page 123
    ...-Tyco generally considers its electronic security assets in three asset pools: internally generated residential systems, internally generated commercial systems and customer accounts acquired through the ADT dealer program. The determination of the depreciable lives of subscriber systems, as defined...

  • Page 124
    ... 12-month basis for 2005, 2004 and 2003, respectively. Revenue Recognition-Contract sales for the installation of fire protection systems, large security intruder systems, undersea cable systems and other construction related projects are recorded primarily on the percentage-of-completion method...

  • Page 125
    ... at the date of acquisition. Goodwill-In performing the goodwill assessments, management relies on a number of factors including operating results, business plans, economic projections, anticipated future cash flows, and transactions and market place data. There are inherent uncertainties related to...

  • Page 126
    ... cash provided by operating activities ...Other cash flow items: Capital expenditures, net(3) ...Decrease in sale of accounts receivable ...Acquisition of customer accounts (ADT dealer program) ...Cash paid for purchase accounting and holdback/earn-out liabilities . Voluntary pension contributions...

  • Page 127
    ...2006 related to restructuring activities in our Electronics segment. During 2005, 2004 and 2003, Tyco paid $328 million, $254 million and $597 million of cash, respectively, to acquire 0.4 million, 0.3 million and 0.6 million customer contracts for electronic security services through the ADT dealer...

  • Page 128
    ...of these transactions strengthen Healthcare's surgical product portfolio. We continue to fund capital expenditures to improve the cost structure of our businesses, to invest in new processes and technology, and to maintain high quality production standards. Capital spending increased to $1.3 billion...

  • Page 129
    ...Long Term Moody's ...Standard & Poor's ...Fitch ... Prime-3 A2 F2 Baa 3 BBB+ BBB+ Prime-3 A2 F2 Baa3 BBB BBB+ On August 3, 2005, Standard & Poor's Rating Services raised the corporate credit and senior unsecured ratings for Tyco International Ltd. and subsidiaries to BBB+ from BBB. The security...

  • Page 130
    ...-balance sheet leasing arrangement under which a subsidiary of the Company has the option to buy five cable laying sea vessels (see Note 17 to the Consolidated Financial Statements). Purchase obligations consist of commitments for purchases of good and services. Minimum pension funding requirements...

  • Page 131
    ... contract completion and product performance. In the opinion of management, such obligations will not significantly affect the Company's financial position, results of operations or cash flows. Legal Matters Class Actions For a detailed discussion of contingencies related to Tyco's securities class...

  • Page 132
    ... future claims, after taking into account its substantial indemnification rights and insurance coverage, will not have a material adverse effect on the Company's financial position, results of operations or cash flows. Income Taxes Tyco and its subsidiaries' income tax returns are periodically...

  • Page 133
    ... 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...

  • Page 134
    ...Balance Sheets. The proceeds from the sales were used to repay short-term and long-term borrowings and for working capital and other corporate purposes and were reported as operating cash flows in the Consolidated Statements of Cash Flows. The sale proceeds were less than the face amount of accounts...

  • Page 135
    ... Company is liable for contract completion and product performance. In the opinion of management, such obligations will not significantly affect the Company's financial position, results of operations or cash flows. The Company generally records estimated product warranty costs at the time of sale...

  • Page 136
    ... value based method prescribed in APB Opinion No. 25 in accounting for employee stockbased compensation. Upon adoption of SFAS No. 123R, the Company will recognize stock-based compensation costs ratably over the service period, which is the earlier of the retirement eligibility date, if the grant...

  • Page 137
    ...; • changes in tax requirements (including tax rate changes, new tax laws and revised tax law interpretations); • results and consequences of Tyco's internal investigation and governmental investigations concerning the Company's governance, management, internal controls and operations; • the...

  • Page 138
    ... foreign currency exchange contracts, cross-currency swaps, foreign currency options, and interest rate swaps. We do not anticipate any material changes in our primary market risk exposures in 2006. We utilize established risk management policies and procedures in executing derivative financial...

  • Page 139
    ... payments to be exchanged under the contract. The amounts included in the table below are in U.S. Dollars, unless noted ($ in millions): 2006 2007 2008 2009 2010 Thereafter Total Fair Value Long-term debt: Fixed rate (Euro) ...Average interest rate ...Fixed rate (Yen) ...Average interest rate...

  • Page 140
    ... our management, including our Chief Executive Officer and our Chief Financial Officer, we conducted an evaluation of our disclosure controls and procedures, as defined under Exchange Act Rule 13a-15(e). Based on this evaluation, our Chief Executive Officer and our Chief Financial Officer concluded...

  • Page 141
    ...) in Internal Control- Integrated Framework. Management's assessment included an evaluation of the design of the Company's internal control over financial reporting and testing of the operational effectiveness of its internal control over financial reporting. Management reviewed the results of its...

  • Page 142
    ... to our Chief Executive Officer, Chief Financial Officer and Chief Accounting Officer, as well as all other employees, as indicated above. Our Guide to Ethical Conduct also meets the requirements of a code of business conduct and ethics under the listing standards of the New York Stock Exchange, Inc...

  • Page 143
    ... Proxy Statement on Schedule 14A for the Annual General Meeting of Shareholders on March 25, 2004 filed on January 28, 2004). Form of Indenture, dated as of June 9, 1998, among Tyco International Group S.A. (''TIGSA''), Tyco and The Bank of New York, as trustee (Incorporated by reference to Exhibit...

  • Page 144
    Exhibit Number Exhibit 4.7 First Supplemental Indenture dated as of November 12, 2003, among Tyco International Group S.A., Tyco International Ltd. and The Bank of New York, as trustee (Incorporated by reference to Exhibit 4.2 to the Registrant's Quarterly Report on Form 10-Q for the quarterly ...

  • Page 145
    ... of the Company and its subsidiaries on a consolidated basis, have not been filed as exhibits. The Company agrees to furnish a copy of these agreements to the Commission upon request. The Tyco International Ltd. Long Term Incentive Plan (formerly known as the ADT 1993 Long-Term Incentive Plan) (as...

  • Page 146
    ... by reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K filed on February 15, 2005).(1) Tyco International Ltd. UK Savings Related Share Option Plan (Incorporated by reference to Exhibit 10.18 to the Registrant's Annual Report on Form 10-K for the fiscal year ended September 30...

  • Page 147
    ... Employment Contract effective October 1, 1999 and executed on June 19, 2000. (Incorporated by reference to Exhibit 10.23 to the Registrant's Annual Report on Form 10-K for the fiscal year ended September 30, 2003 filed on December 17, 2003).(1) Tyco International Ltd. 2004 Stock and Incentive Plan...

  • Page 148
    ... Management contract or compensatory plan. (2) In July 1997, a wholly-owned subsidiary of what was formerly called ADT Limited (''ADT'') merged with Tyco International Ltd., a Massachusetts Corporation at the time (''Former Tyco''). Upon consummation of the merger, ADT (the continuing public company...

  • Page 149
    ...duly authorized. TYCO INTERNATIONAL LTD. By: /s/ CHRISTOPHER J. COUGHLIN Christopher J. Coughlin Executive Vice President and Chief Financial Officer (Principal Financial Officer) Date: December 9, 2005 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed...

  • Page 150
    ... Wijnberg Director * Jerome B. York Director * William B. Lytton, by signing his name hereto, does sign this document on behalf of the above noted individuals, pursuant to powers of attorney duly executed by such individuals, which have been filed as Exhibit 24.1 to this Report. By: /s/ WILLIAM...

  • Page 151
    TYCO INTERNATIONAL LTD. Index to Consolidated Financial Information Page Management's Responsibility for Financial Statements ...Reports of Independent Registered Public Accounting Firms ...Consolidated Statements of Income ...Consolidated Balance Sheets ...Consolidated Statements of Shareholders' ...

  • Page 152
    ... values. Expected behavior starts with our Board of Directors and our senior team leading by example and includes every one of Tyco's 247,900 global employees, as well as our customers, suppliers and business partners. One of our most crucial objectives is continuing to restore public, employee...

  • Page 153
    ... changed the measurement date of its pension and post retirement plans from September 30 to August 31. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of the Company's internal control over financial reporting...

  • Page 154
    ...REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Stockholders of Tyco International Ltd. We have audited management's assessment, included in the accompanying Management's Report on Internal Control over Financial Reporting, that Tyco International Ltd. and subsidiaries (the ''Company...

  • Page 155
    ... financial statement schedule and included an explanatory paragraph relating to the Company's change of its measurement date for its pension and post retirement plans from September 30 to August 31. /s/ DELOITTE & TOUCHE LLP DELOITTE & TOUCHE LLP New York, New York December 9, 2005 2005 Financials...

  • Page 156
    ... of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the...

  • Page 157
    TYCO INTERNATIONAL LTD. CONSOLIDATED STATEMENTS OF INCOME Years ended September 30, 2005, 2004 and 2003 (in millions, except per share data) 2005 2004 2003 Revenue from product sales ...Service revenue ...Net revenue ...Cost of product sales ...Cost of services ...Selling, general and ...

  • Page 158
    TYCO INTERNATIONAL LTD. CONSOLIDATED BALANCE SHEETS As of September 30, 2005 and 2004 (in millions, except share data) 2005 2004 Assets Current Assets: Cash and cash equivalents ...Accounts receivable, less allowance for doubtful accounts of $422 and $516, respectively ...Inventories ...Prepaid ...

  • Page 159
    ... share grants, net of forfeitures ...Share options exercised, including tax benefit of $158 Compensation expense ...Other ...Balance at September 30, 2004 ...Comprehensive income: Net income ...Currency translation ...Unrealized loss on marketable securities, net of income taxes ...Minimum pension...

  • Page 160
    ...Income taxes ...Other ...Net cash provided by operating activities ...Net cash provided by discontinued operating activities ...Cash Flows From Investing Activities: Capital expenditures, net ...Acquisition of customer accounts (ADT dealer program) ...Acquisition of businesses, net of cash acquired...

  • Page 161
    ...products, sales of security systems, subscriber billings for monitoring services and contract sales. Revenue from the sales of products is recognized at the time title and risks and rewards of ownership pass. This is generally when the products reach the free-on-board shipping point, the sales price...

  • Page 162
    ... revenue is included in current liabilities or long-term liabilities, as appropriate. Contract sales for the installation of fire protection systems, undersea fiber optic cable systems and other construction related projects are recorded primarily on the percentage-of-completion method. Profits...

  • Page 163
    ...Share Option Plans-Tyco measures compensation cost in connection with employee share option plans using the intrinsic value method and accordingly does not recognize compensation expense for the issuance of options with an exercise price equal to or greater than the market price at the date of grant...

  • Page 164
    ... term of the lease or economic useful life 10 to 14 years 2 to 20 years The Company generally considers its electronic security assets in three asset pools: internally generated residential systems, internally generated commercial systems and customer accounts acquired through the ADT dealer...

  • Page 165
    ... result from purchasing residential security monitoring contracts from an external network of independent dealers who operate under the ADT dealer program. Acquired contracts and related customer relationships are recorded at their contractually determined purchase price. The Company incurs costs...

  • Page 166
    ... Accounting Policies (Continued) During the first six months (twelve months in certain circumstances) after the purchase of the customer contract, any cancellation of monitoring service, including those that result from customer payment delinquencies, results in a chargeback by the Company...

  • Page 167
    TYCO INTERNATIONAL LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Basis of Presentation and Summary of Significant Accounting Policies (Continued) Product Warranty-The Company generally records estimated product warranty costs at the time of sale. Manufactured products are warranted against ...

  • Page 168
    ... value based method prescribed in APB Opinion No. 25 in accounting for employee stockbased compensation. Upon adoption of SFAS No. 123R, the Company will recognize stock-based compensation costs ratably over the service period, which is the earlier of the retirement eligibility date, if the grant...

  • Page 169
    ... December 15, 2005. The Company is currently assessing the impact that FIN No. 47 will have on the results of its operations, financial position or cash flows. In June 2005, the FASB issued Staff Position (''FSP'') No. 143-1, ''Accounting for Electronic Equipment Waste Obligations,'' which provides...

  • Page 170
    ...employees resulting in restructuring charges totaling $285 million, including $6 million reflected in cost of sales for the non-cash write-down in carrying value of inventory, $197 million for employee severance and benefits, $60 million for facility exit costs and $22 million for other related cost...

  • Page 171
    ... of $55 million related to 2004 restructuring plans including $1 million reflected in cost of sales for the non-cash write-down in carrying value of inventory. Additionally, Engineered Products and Services completed certain restructuring activities for amounts less than originally anticipated, and...

  • Page 172
    ... than originally anticipated. During 2003, Engineered Products and Services recorded restructuring charges of $18 million related to 2003 restructuring plans, including $6 million reflected in cost of sales for the non-cash write-down in carrying value of inventory. Additionally, Engineered Products...

  • Page 173
    ...United States, Europe and Latin America which includes the restructuring of certain operations within the Tyco Submarine Telecommunications business. These plans included the termination of approximately 13,800 employees and other related exit costs. These decisions resulted in restructuring charges...

  • Page 174
    ...value, and to a lesser extent, to the write-off of cash management software. In addition, Corporate, Engineered Products and Services, Electronics and Healthcare recorded combined charges of $18 million related to the impairment of property, plant and equipment. 2003 Charges During 2003, the Company...

  • Page 175
    ... businesses which were reported as discontinued operations within Fire and Security, Plastics and Adhesives and Engineered Products and Services. The Company reported losses on sale or additional impairments to write the carrying value of such assets down to their estimated fair value of $56 million...

  • Page 176
    ... divested ten businesses that were reported as continuing operations in Fire and Security, Healthcare and Engineered Products and Services. The Company recorded net losses and impairments on divestitures of $32 million, including a $3 million charge reflected in cost of sales, in connection with the...

  • Page 177
    ..., Engineered Products and Services, Fire and Security and Electronics for an aggregate cost of $44 million in cash, net of $1 million of cash acquired. These acquisitions were funded utilizing cash from operations. The results of operations of the acquired companies have been included in Tyco...

  • Page 178
    ... 0.6 million customer contracts for electronic security services through the ADT dealer program. 6. Other Expense, Net On September 12, 2002, indictments were filed in the Supreme Court of the State of New York against Mr. L. Dennis Kozlowski, our former Chairman and Chief Executive Officer, and Mr...

  • Page 179
    ... the Defendants were sentenced in New York State Supreme Court to serve eight and one third years to twenty five years in prison and to make joint restitution to the Company in the amount of $134 million, resulting from the larceny convictions. The Court ordered the restitution payment to be made by...

  • Page 180
    TYCO INTERNATIONAL LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 7. Income Taxes Significant components of income tax provision for each year are as follows ($ in millions): 2005 2004 2003 Current: United States: Federal ...State ...Non-U.S...Current income tax provision ...Deferred: United ...

  • Page 181
    ... and its subsidiaries' income tax returns are periodically examined by various tax authorities. In connection with such examinations, certain tax authorities, including the U.S. Internal Revenue Service (''IRS''), have raised issues and proposed tax deficiencies. The Company is reviewing the issues...

  • Page 182
    .... Further, management has reviewed with tax counsel the issues raised by these taxing authorities and the adequacy of these recorded amounts. If the Company's estimate of tax liabilities proves to be less than the ultimate assessment, an additional charge to expense would result. If payment of these...

  • Page 183
    TYCO INTERNATIONAL LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 8. Cumulative Effect of Accounting Change (Continued) assessment of which party to VIE's, if any, bears a majority of the risk to its expected losses, or stands to gain from a majority of its expected returns. The Company has ...

  • Page 184
    ...Balance Sheets. The proceeds from the sales were used to repay short-term and long-term borrowings and for working capital and other corporate purposes and were reported as operating cash flows in the Consolidated Statements of Cash Flows. The sale proceeds were less than the face amount of accounts...

  • Page 185
    ... are as follows ($ in millions): Engineered Fire and Products and Security Electronics Healthcare Services Total Balance at September 30, 2003 ...Purchase accounting adjustments(1) Acquisitions ...Divestitures ...Held for sale ...Currency translation ...Balance at September 30, 2004 ...Purchase...

  • Page 186
    ...on the six-month LIBOR, calculated annually as the average of the 12 rates in effect on the first day of the month. Loans are generally repayable in ten years, except that earlier payments are required under certain circumstances, such as when an employee is terminated. In addition, the Company made...

  • Page 187
    ... Vice President and Chief Corporate Counsel. The amount outstanding under these loans at both September 30, 2005 and 2004 was $15 million and is expected to be repaid in 2006. Richard J. Meelia, the President of Tyco Healthcare, had an outstanding loan under the Key Employee Loan Program. The rate...

  • Page 188
    ... than premium payments requires Mr. Kozlowski's approval. Tyco discontinued making premium payments for Mr. Kozlowski's insurance policy as of October 1, 2002. The Company filed affirmative actions against Messrs. Kozlowski and Swartz, seeking disgorgement of all benefits under these executive life...

  • Page 189
    TYCO INTERNATIONAL LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 13. Related Party Transactions (Continued) County) and settled a civil action for violation of federal securities laws brought by the SEC in United States District Court for the Southern District of New York. Both the felony ...

  • Page 190
    ... loss on the retirement of debt, including the write-off of unamortized debt issuance costs, which is reflected in Other expense, net in the Consolidated Statements of Income. On December 16, 2004, Tyco International Group S.A., a wholly-owned subsidiary of the Company organized under the laws of...

  • Page 191
    ... Company is liable for contract completion and product performance. In the opinion of management, such obligations will not significantly affect the Company's financial position, results of operations or cash flows. The Company generally records estimated product warranty costs at the time of sale...

  • Page 192
    ... are reported on the Consolidated Balance Sheets at fair value, and changes in a derivative's fair value are recognized currently in earnings unless specific hedge criteria are met. Fair value estimates are based on relevant market information, including current market rates and prices, assuming...

  • Page 193
    ...as Tyco deals with a variety of major banks worldwide with long-term Standard & Poor's and Moody's credit ratings of A/A2 or higher. In addition, only conventional derivative financial instruments are utilized, thereby affording optimum clarity as to the market risk. None of the Company's derivative...

  • Page 194
    ... current Chief Executive Officer are named defendants in a number of purported class actions alleging violations of the disclosure provisions of the federal securities laws. Tyco, certain of the Company's current and former employees, some members of the Company's former senior corporate management...

  • Page 195
    ...into the Company's governance, management, operations, accounting and related controls. Certain current and former employees in Fire and Security received subpoenas from the SEC's Division of Enforcement seeking testimony related to past accounting practices regarding the ADT dealer connect fees. As...

  • Page 196
    ... alleges that Tyco Healthcare and Mallinckrodt used their market position to prevent hospitals from purchasing Masimo's pulse oximetry products. Masimo seeks injunctive relief and monetary damages, including treble damages. Trial in this case began on February 22, 2005. The jury returned its verdict...

  • Page 197
    ... Healthcare Group LP filed on November 22, 2005. In all nine complaints the putative class representatives, on behalf of themselves and others, seek to recover overcharges they allege they paid for pulse oximetry products as a result of anticompetitive conduct by Nellcor in violation of the federal...

  • Page 198
    ...to our cost estimate of $16 million. The Company believes that any potential payment on such estimated amounts will not have a material adverse effect on its financial position, results of operations or cash flows. Asbestos Tyco and some of its subsidiaries are named as defendants in personal injury...

  • Page 199
    ... anticipated future claims, after taking into account its substantial indemnification rights and insurance coverage, will not have a material adverse effect on the Company's financial position, results of operations or cash flows. Income Taxes The Company and its subsidiaries' income tax returns are...

  • Page 200
    ... million after tax gain ($28 million pretax). The current year effects of this change in measurement date did not have a material effect on net periodic benefit costs. Defined Benefit Pension Plans-The Company has a number of noncontributory and contributory defined benefit retirement plans covering...

  • Page 201
    ...of change in measurement date ...Benefit obligation at beginning of year ...Service cost ...Interest cost ...Employee contributions ...Plan amendments ...Actuarial loss (gain) ...Benefits and administrative expenses paid ...New plans ...Plan settlements, curtailments and special termination benefits...

  • Page 202
    ... return on plan assets ...Employer contributions ...Employee contributions ...New plans ...Plan settlements, curtailments and special termination Benefits and administrative expenses paid ...Currency translation ...Funded status ...Unrecognized net actuarial loss ...Unrecognized prior service cost...

  • Page 203
    ...will make the minimum required contributions to its pension plans in 2006 of $12 million for the U.S. plans and $107 million for non-U.S. plans. Benefit payments, including those amounts to be paid out of corporate assets and reflecting future expected service as appropriate, are expected to be paid...

  • Page 204
    ... used to pay non-qualified plan benefits. The trust primarily holds corporate-owned life insurance policies. The rabbi trust assets, which are consolidated, are subject to the claims of the Company's creditors in the event of the Company's insolvency. The cash surrender value of these policies, net...

  • Page 205
    ... to these benefits. Postretirement Benefit Plans-The Company generally does not provide postretirement benefits other than pensions for its employees. However, certain acquired operations provide these benefits to employees who were eligible at the date of acquisition, and a small number of U.S. and...

  • Page 206
    ...: Discount rate ...Rate of compensation increase ... 4.77% 5.52% 4.00% 4.25% The Company expects to make contributions to its postretirement benefit plans of $29 million in 2006. Benefit payments, including those amounts to be paid out of corporate assets and reflecting future expected service as...

  • Page 207
    ... International Ltd. Long Term Incentive Plan II (the ''LTIP II Plan''), as well as the Tyco International Ltd. 1994 Restricted Stock Ownership Plan for Key Employees (the ''1994 Plan'') for all awards effective on and after March 25, 2004. The 2004 Plan provides for the award of stock options, stock...

  • Page 208
    ...' equity. Recipients of restricted shares have the right to vote such shares and receive dividends. Income tax benefits resulting from the vesting of restricted shares, including a deduction for the excess, if any, of the fair market value of restricted shares at the time of 132 2005 Financials

  • Page 209
    ... than the market price of the common shares on the date the option is granted. Conditions of vesting are determined at the time of grant under the 2004 Plan; unless otherwise stated, options become exercisable in equal annual installments over a period of four years and will generally expire 10...

  • Page 210
    ... right to receive dividends in the form of additional DSUs. Conditions of vesting are determined at the time of grant. Under the 2004 Plan, unless otherwise stated, DSU's vest in equal annual installments over four years. However, the majority of Tyco's DSU grants vest in equal annual installments...

  • Page 211
    ... maintains two other employee stock purchase plans for the benefit of employees of certain qualified non-U.S. subsidiaries. Under one plan, eligible employees are granted options to purchase shares at the end of three years of service at 85% of the market price at the time of grant. As of September...

  • Page 212
    ... engineered products, including industrial valves and controls as well as steel tubular goods, and provides consulting, engineering and construction management and operating services. During 2005, the Company committed to a plan to sell the Plastics and Adhesives segment and has reported its results...

  • Page 213
    TYCO INTERNATIONAL LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 22. Consolidated Segment and Geographic Data (Continued) 2005 2004 2003 Operating income: Fire and Security ...Electronics ...Healthcare ...Engineered Products and Services . Corporate and Other(1) ... ... ... ... ... ... ... ... ...

  • Page 214
    ... Segment and Geographic Data (Continued) Total assets by segment at September 30, 2005, 2004 and 2003 are as follows ($ in millions): 2005 2004 2003 Total assets: Fire and Security ...Electronics ...Healthcare ...Engineered Products and Services Corporate and Other(1) ...Assets held for sale...

  • Page 215
    ... countries based on the reporting entity that records the transaction. Long-lived assets by geographic area at September 30, 2005, 2004 and 2003 are as follows ($ in millions): 2005 2004 2003 Long-lived assets : United States ...Other Americas ...Europe ...Asia-Pacific ...Corporate and Other...

  • Page 216
    TYCO INTERNATIONAL LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 24. Supplementary Balance Sheet Information Selected supplementary balance sheet information at September 30, 2005 and 2004 is as follows ($ in millions): 2005 2004 Purchased materials Work in process ...Finished goods ......

  • Page 217
    ...from continuing operations includes long-lived asset impairment charges of $3 million, net losses and impairments on divestitures of $10 million, a $277 million charge related to a patent dispute in the Healthcare segment, a $70 million charge related to certain former executives' employment, a loss...

  • Page 218
    ... of $5 million related to the retirement of debt. Effective January 1, 2004, retroactive to October 1, 2003, the Company began reflecting sub-contract costs in net revenue and cost of revenue at Infrastructure Services (a business unit within Engineered Products and Services). These adjustments had...

  • Page 219
    ...in millions) Tyco International Ltd. Tyco International Group S.A. Other Subsidiaries Consolidating Adjustments Total Net revenue ...Cost of product sales ...Cost of services ...Selling, general and administrative expenses ...Restructuring and other charges, net . . Impairment of long-lived assets...

  • Page 220
    ... in millions) Tyco International Ltd. Tyco International Group S.A. Other Subsidiaries Consolidating Adjustments Total Net revenue ...Cost of product sales ...Cost of services ...Selling, general and administrative expenses ...Restructuring and other charges, net Impairment of long-lived assets...

  • Page 221
    ...Tyco International Group S.A. Other Subsidiaries Consolidating Adjustments Total Net revenue ...Cost of product sales ...Cost of services ...Selling, general and administrative expenses ...Restructuring and other credits, net ...Impairment of long-lived assets ...Goodwill impairment ...Operating...

  • Page 222
    ...CONSOLIDATED FINANCIAL STATEMENTS 26. Tyco International Group S.A. (Continued) CONSOLIDATING BALANCE SHEET September 30, 2005 ($ in millions) Tyco International Ltd. Tyco International Group S.A. Other Subsidiaries Consolidating Adjustments Total Assets Current Assets: Cash and cash equivalents...

  • Page 223
    ... NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 26. Tyco International Group S.A. (Continued) CONSOLIDATING BALANCE SHEET September 30, 2004 ($ in millions) Tyco International Ltd. Tyco International Group S.A. Other Subsidiaries Consolidating Adjustments Total Assets Current Assets: Cash and cash...

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    ... activities ...Net cash provided by discontinued operating activities ...Cash Flows From Investing Activities: Capital expenditures, net ...Acquisition of customer accounts (ADT dealer program) ...Acquisition of businesses, net of cash acquired Purchase accounting and holdback/earn-out liabilities...

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    ... activities ...Net cash provided by discontinued operating activities ...Cash Flows From Investing Activities: Capital expenditures, net ...Acquisition of customer accounts (ADT dealer program) ...Acquisition of businesses, net of cash acquired . Purchase accounting and holdback/earn-out liabilities...

  • Page 226
    ... activities ...Net cash provided by discontinued operating activities ...Cash Flows From Investing Activities: Capital expenditures, net ...Acquisition of customer accounts (ADT dealer program) ...Acquisition of businesses, net of cash acquired . Purchase accounting and holdback/earn-out liabilities...

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    ... Healthcare segment acquired a controlling interest in Floreane Medical Implants, S.A. (''Floreane'') for approximately $89 million in cash. Floreane is an innovator in the development of surgical support implants for parietal, urological and gynecological surgery. The acquisition has a total value...

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    TYCO INTERNATIONAL LTD. SCHEDULE II-VALUATION AND QUALIFYING ACCOUNTS (in millions) Additions Charged to Income Acquisitions, Divestitures and Other Description Balance at Beginning of Year Deductions Balance at End of Year Accounts Receivable: Year Ended September 30, 2003 . . Year Ended ...

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    CORPORATE DATA

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    ... HM 08, Bermuda. The Form 10-K is also available on the Company's website at www.tyco.com. The Company has filed with the New York Stock Exchange (NYSE) the Certification of its Chief Executive Officer confirming that the Company has complied with the NYSE corporate governance listing standards.

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    ...Two World Financial Center New York, NY 10281-1414 Registered shareholders (shares held in your own name) with questions such as change of address, lost certificates, or dividend checks should contact Tyco's transfer agent at: Mellon Investor Services LLC 480 Washington Blvd. Jersey City, NJ 07310...

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    TYCO I N TERN ATI ON AL LTD. 2nd Floor 90 Pitts Bay Road Pembroke HM 08, Bermuda www.tyco.com