ADT 2006 Annual Report Download

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2006 ANNUAL REPORT

Table of contents

  • Page 1
    2006 ANNUAL REPORT

  • Page 2
    ... best-in-class operating practices and leverage company-wide opportunities. FINANCIAL STRENGTH & FLEXIBILITY: Consistently achieve outstanding performance in revenues, earnings, cash flow and all other key financial metrics. BUILDING TEAMS & CORPORATE CULTURE: Attract and retain employees who...

  • Page 3
    ...'s portfolio of diverse businesses into three independent public companies - Tyco Electronics, Tyco Healthcare and the combination of Tyco Fire & Security and Engineered Products & Services. Fiscal 2006 was a busy year for us, marked by continued revenue growth and strong cash flow. We are pleased...

  • Page 4
    ...into major business segments including: ADT Worldwide, Fire Protection Services, Flow Control, Safety Products and Electrical and Metal Products. Tyco International has a host of significant competitive advantages, including leading market positions and powerful, highly-recognized brands; a diverse...

  • Page 5
    ... product mix and customer base, broad and balanced geographic sales mix and an experienced management team. Upon separation, Tyco Electronics will be better positioned to pursue its own unique strategy for growth, including leveraging its size and scope to further strengthen its market leadership...

  • Page 6
    ... Capital Corporation SENIOR MANAGEMENT TEAM Edward D. Breen* Chairman Chief Executive Officer Christopher J. Coughlin* Executive Vice President Chief Financial Officer William B. Lytton* Executive Vice President General Counsel Edward C. Arditte Senior Vice President Strategy & Investor Relations...

  • Page 7
    ... 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, Edward D. Breen Chairman and Chief Executive Officer Tyco International Ltd...

  • Page 8
    2007 Proxy Statement

  • Page 9
    .... Tyco shareholders of record who attend the meeting may vote their common shares personally, even though they have sent in proxies. By Order of the Board of Directors, William B. Lytton Executive Vice President and General Counsel January 19, 2007 PLEASE PROMPTLY COMPLETE, SIGN, DATE AND RETURN...

  • Page 10
    2007 Proxy Statement

  • Page 11
    ... ... SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT . . EXECUTIVE OFFICER COMPENSATION ...Summary Compensation Table ...Option Grants in Last Fiscal Year ...Aggregated Option Exercises in Last Fiscal Year and Retirement Plans ...Employment, Retention and Severance Agreements . Equity...

  • Page 12
    ... of Independent Auditors ...OTHER MATTERS ...Costs of Solicitation ...Presentation of Financial Statements ...Registered and Principal Executive Offices ...Shareholder Proposals for the 2008 Annual General Meeting United States Securities and Exchange Commission Reports . General ... 44 45 45 46...

  • Page 13
    ... 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, instruct the...

  • Page 14
    ... should come to the Beneficial Owners check-in area. To be admitted, beneficial owners must bring account statements or letters from their banks or brokers showing that they own Tyco common shares. Registration will begin at 8:00 a.m. Atlantic Time and the Annual General Meeting will begin at 9:00...

  • Page 15
    ...change your vote in one of three ways at any time before it is exercised: • Notify our Secretary in writing before the Annual General Meeting that you are revoking your proxy; • Submit another proxy card (or voting instruction card if you hold your common shares in street name) with a later date...

  • Page 16
    ... sharing an address who are receiving multiple copies of the proxy materials, Annual Report and Form 10-K will need to contact their broker, bank or other nominee to request that only a single copy of each document be mailed to all shareholders at the shared address in the future. In addition...

  • Page 17
    ...5:00 p.m. on March 7, 2007 by hand or mail at: Tyco International Ltd. c/o Tyco Holdings (UK) Limited Law Department 7th Floor Broadgate West 9 Appold Street London EC2A 2AP United Kingdom If your common shares are held in street name, you should return your proxy card or voting instruction card in...

  • Page 18
    ... three companies through tax-free stock dividends. In 2006, corporate governance in the area of executive compensation has received greater attention, both by governmental regulators and shareholders. Even though the changes to disclosure rules relating to executive compensation policies, practices...

  • Page 19
    ...that may arise between Annual General Meetings. 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 (''Chairman/CEO'') should be held...

  • Page 20
    ... performance and procedures, including the adequacy of their committee charters; and • In concluding its self-evaluation, the Board meets in executive session to review and discuss the annual evaluation results. Board Compensation and Share Ownership Non-employee director compensation consists of...

  • Page 21
    ... Company's stock ownership guidelines. Directors who are also Tyco employees receive no additional compensation for serving as a director. Director Service Directors are elected by an affirmative vote of a majority of the votes cast by shareholders at the annual meeting and serve for one-year terms...

  • Page 22
    ... either entity's annual revenues for the last fiscal year; • No nominee for director serves as a director, trustee, executive officer or similar position of a charitable or non-profit organization to which the Company or its subsidiaries made charitable contributions or payments in fiscal 2006, in...

  • Page 23
    ...reach the Board via email at [email protected]. A direct link to this email address can be found on our website at www.tyco.com under the headings ''Our Commitment- Governance-Contact Tyco Board.'' Inquiries can be submitted anonymously and confidentially. All inquiries are received and reviewed by...

  • Page 24
    ...lists the date each current Board member received DSU grants during fiscal 2006 and the fair market value at the time the DSUs were granted. DSUs are vested upon grant and are payable in the form of Tyco common shares within 30 days following termination of service as a Board member. For fiscal year...

  • Page 25
    ... or ends Board service during the quarter. In addition to the cash retainers and fees, on October 2, 2006, each director received a grant of DSUs under the 2004 Stock and Incentive Plan with a value of $120,013 based on the average fair market value of a common share for the 60 calendar day period...

  • Page 26
    ... September 2006, Admiral Blair was President and Chief Executive Officer of The Institute for Defense Analyses, a federally-funded research and development center. Admiral Blair retired as Commander in Chief of the U.S. Pacific Command in 2002 after more than 30 years of service in the armed forces...

  • Page 27
    ...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. Mr. Gordon also serves as a director and member...

  • Page 28
    .... Jerome B. York-Mr. York, age 68, joined our Board in November 2002. 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...

  • Page 29
    ... of shareholders, developing and recommending to the Board a set of corporate governance principles, and playing a general leadership role in Tyco's corporate governance. In addition, the Nominating and Governance Committee also oversees our environmental, health and safety management system. The...

  • Page 30
    ...under NYSE listing standards for populating the Audit, Compensation and Human Resources and Nominating and Governance Committees. In November 2005, the Board governance principles were amended to limit the number of other public company boards of directors on which a non-executive director can serve...

  • Page 31
    ...Senior Vice President of Operational Excellence and became the President of Tyco Flow Control in the Tyco Engineered Products and Services segment in January 2005. Prior to joining Tyco, Mr. Gursahaney was the President & Chief Executive Officer of GE Medical Systems-Asia. During his ten year tenure...

  • Page 32
    ... 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 Senior Vice President, Corporate Development, and General Tax Counsel from...

  • Page 33
    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth the number of shares of common stock beneficially owned as of October 2, 2006, by each current director, nominee for director, executive officer named in the Summary Compensation Table under ''Executive ...

  • Page 34
    ... shares. Number of Common Shares Beneficially Owned Percentage of Common Stock Outstanding on September 29, 2006 Name and Address of Beneficial Owner Davis Selected Advisers LP(1) ...2949 East Elvira Road, Suite 101 Tucson, Arizona 85706 Capital Research and Management Company(2) ...333 South...

  • Page 35
    ...year. Annual Compensation Other Compensation(2) ($) Long Term Compensation Restricted Stock Awards(6) ($) Shares Underlying All Other Stock Compensation(7) Options ($) Name & Principal Position Year Salary ($) Bonus ($) Edward D. Breen ...Chairman & CEO Christopher J. Coughlin ...Executive Vice...

  • Page 36
    ... Form 8-K, Tyco's Board of Directors awarded performance share awards to certain senior management employees, including the Company's named executive officers and Senior Officers, effective November 22, 2005. The awards vest on the third anniversary of the grant date and the number of shares awarded...

  • Page 37
    ... shows all grants of stock options to the Named Officers during fiscal 2006 under the Tyco International Ltd. 2004 Stock and Incentive Plan. No. of Securities Underlying Options Grant Percentage of Total Options Granted to Employees in Fiscal Year(1) Exercise Price ($/Share)(2) Grant Date Present...

  • Page 38
    ... of employment or (ii) attainment of age 60 in accordance with transition rules to recently enacted tax legislation. The following table shows the estimated annualized benefits payable under the terms of Mr. Breen's agreement for the compensation and years of credited service shown, assuming...

  • Page 39
    ... on his annual base salary 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 under the pension plan for the annualized monthly salary as of three years prior to...

  • Page 40
    ...ratio of 1.27013 USD to 1 EUR. The annual benefits shown in the table assume the employee would receive his retirement benefits under the pension benefits plan in the form of a straight life annuity upon normal retirement at age 65. The retiree is required to pay medical and long-term care insurance...

  • Page 41
    ...amended to make several administrative 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...

  • Page 42
    ... 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 43
    ...of health and dental benefits for 24 months at active employee rates; and (iii) in our discretion, outplacement services for up to 12 months. Any unvested restricted stock and restricted stock units are forfeited. As a condition of receiving the foregoing benefits, the plan requires the executive to...

  • Page 44
    ... inception of the Plan. 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 8,694,553 outstanding stock options assumed in connection...

  • Page 45
    ... 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, but...

  • Page 46
    ... Company's human resources strategies. As part of its regular oversight of compensation policies and practices, the Committee periodically reviews any contractual commitments or plans which may result in payments to executives, including existing executive contracts, change in control arrangements...

  • Page 47
    ...agreements). During 2006, the Committee also reviewed existing stock ownership and retention guidelines, change in control arrangements, severance plans, executive retirement benefit obligations, and aircraft usage policy. The Tyco International (U.S.) Severance Plan for U.S. Officers and Executives...

  • Page 48
    ...audit was conducted of compensation practices, including appropriate documentation of compensation actions, compliance with the Company's Delegation of Authority and other compensation related control processes. The audit, performed by the internal audit function, which reports directly to the Audit...

  • Page 49
    ... under the Annual Incentive Plan. For fiscal year 2006, the Board approved payment of bonuses at target to Senior Officers at corporate headquarters, subject to individual performance adjustment and to the approved maximum award levels. Long Term Incentive Compensation: Tyco's long term incentive...

  • Page 50
    ... 2006, annual grant dates were changed from March to November, to facilitate establishment of long term performance goals, if applicable, early in the fiscal year. In fiscal year 2006, the Committee determined the number of shares authorized for annual grant based on a number of factors, including...

  • Page 51
    ... retention of key employees. We have endeavored to structure our plans so that annual bonuses, stock options and performance share awards should be fully deductible. DSUs are paid following an executive's termination of employment when the deduction limits of Internal Revenue Code Section 162(m) do...

  • Page 52
    ... (grant value of stock options and restricted stock); • historical financial performance; and • compensation sharing ratios (compensation realizable as a percentage of specific financial measures). Overall, the analysis demonstrated that pay for the CEO and other named executive officers is...

  • Page 53
    ... for fiscal year 2006, and the remaining two-thirds of the granted units will convert to vested restricted shares on a 1-for-1 basis. The average price of Tyco common shares in fiscal 2006 was $26.92. Under Mr. Breen's leadership as the Company's Chief Executive Officer, the Company increased its...

  • Page 54
    ... maintenance and sale of the home, including the payment of a service fee to the relocation company. In 2006, the Company paid $1,132 for costs related to the sale of Mr. Lynch's residence in fiscal year 2005. The benefit was provided under the Company's relocation policy and the cost is considered...

  • Page 55
    ... 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 on their behalf. Based on Tyco's review of the copies of such forms it has received, as...

  • Page 56
    ... thereon regarding the Company's internal control over financial reporting required by Section 404 of the Sarbanes-Oxley Act of 2002. Management represented to the Committee that Tyco's consolidated financial statements were prepared in accordance with generally accepted accounting principles. The...

  • Page 57
    ... financial statements of the Company, the 2006 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 and other assistance required to complete the year-end...

  • Page 58
    ... MATTERS Costs of Solicitation The cost of solicitation of proxies will be paid by Tyco. Tyco has engaged MacKenzie Partners, Inc. as 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...

  • Page 59
    ... Commission Reports Copies of our Annual Report on Form 10-K for the fiscal year ended September 29, 2006, as filed with the SEC (without exhibits), are available to shareholders free of charge on our website at www.tyco.com or by writing to Attn: Tyco Shareholder Services, Tyco International...

  • Page 60
    2007 Proxy Statement

  • Page 61
    ... (Address of registrant's principal executive office) 441-292-8674 (Registrant's telephone number) Securities registered pursuant to Section 12(b) of the Act: Title of each class Common Shares, Par Value $0.20 Name of each exchange on which registered New York Stock Exchange Securities registered...

  • Page 62
    ...Item 2. Item 3. Item 4. Part II Item 5. Item 6. Item 7. 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 ...Unresolved Staff...

  • Page 63
    ... 1997 acquisition of Tyco International Ltd., a Massachusetts corporation, by ADT Limited, a public company organized under the laws of Bermuda, at which time ADT Limited changed its name to Tyco International Ltd. Unless otherwise indicated, references in this Annual Report to 2006, 2005 and 2004...

  • Page 64
    ... our competitive position over the long term. Segments See Note 23 to the Consolidated Financial Statements for certain segment and geographic financial data relating to our business. I. Electronics Tyco is the world's leading supplier of passive electronic components. With 2006 net revenue of $12...

  • Page 65
    ... surveillance, access control, electronic asset protection and security management systems, products and services. These and other security services are provided principally through our ADT operating companies. Electronically monitored security systems are tailored to our customers' specific needs...

  • Page 66
    ...national accounts sales force services large commercial customers. We also utilize advertising, the Internet and direct mail to market our services. We provide residential and commercial electronic security services primarily in North America, Latin America, Europe, South Africa and the Asia-Pacific...

  • Page 67
    ...-by-country basis. In Australia, New Zealand and Asia, we compete with a few large fire protection contractors, as well as with many smaller regional or local companies. Tyco competes for fire protection systems contracts primarily on the basis of price, service and quality. III. Healthcare Tyco is...

  • Page 68
    ...) system. Respiratory 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...

  • Page 69
    ...-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 70
    ...a full line of thermal heat tracing products, specialty heaters and related products and turnkey installation services. These products are manufactured in Tyco Flow Control's facilities located in North America, Europe, South America and the Asia-Pacific region. Tyco Flow Control's products are used...

  • Page 71
    .... Tyco Fire & Building Products sells fire protection products in North America, Central America, South America and the Asia-Pacific region through a network of company-owned distribution facilities as well as through independent distributors. In Europe and the Middle East, we operate a number of...

  • Page 72
    ... alarm products, video and access control products, as well as products related to electronic article surveillance. Engineered Products and Services focuses on improvements in hydraulic design, which controls the motion of fluids, resulting in new fire protection devices and flow control products...

  • Page 73
    ..., 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 SEC. Investors may read and copy any document that Tyco files, including this Annual Report on Form 10-K, at the SEC's Public...

  • Page 74
    ... Separation; and • the Company's ability to satisfy certain conditions precedent, including final approval by the Tyco Board of Directors, receipt of certain tax rulings, necessary opinions of counsel and the filing and effectiveness of registration statements with the SEC. 12 2006 Financials

  • Page 75
    ... members of our Board of Directors and our current Chief Executive Officer, former Chief Financial 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...

  • Page 76
    ... 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 previously reported in our periodic filings, these practices have been discontinued. The United States Department of Labor is...

  • Page 77
    ...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 78
    ... 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 79
    ... environmental protection and health and safety laws, or our liabilities arising from past or future releases of, or exposures to, hazardous substances will not exceed our estimates or adversely affect our financial condition and results of operations or that we will not be subject to additional...

  • Page 80
    ... revenue and results of operations will be adversely affected. Tyco amortizes 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...

  • Page 81
    ... that our internal control policies and procedures will always protect us from reckless or criminal acts committed by our employees that would violate U.S. and/or foreign laws, including the laws governing payments to government officials. Such improper actions could subject the Company to civil...

  • Page 82
    ... (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 addition, the U.S. federal government and...

  • Page 83
    ... 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 84
    ... Note 18 to Consolidated Financial Statements for a description of our lease obligations. Item 3. Legal Proceedings Securities Class Actions As previously reported in our 2005 Form 10-K, Tyco and certain of our former directors and officers have been named as defendants in over 40 securities class...

  • Page 85
    ..., 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 86
    ... with the October 17, 2000 merger of Tyco and Mallinckrodt, Inc. Plaintiff names as defendants Tyco International Ltd., and certain former Tyco executives and asserts causes of action under Section 11, 12(a)(2) and 15 of the Securities Act of 1933. The amended class action complaint alleges that the...

  • Page 87
    ... 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, William Lytton, current members of Tyco's Board of Directors including Dennis Blair, Bruce...

  • Page 88
    ...name as defendants Tyco International Ltd. and certain former Tyco directors and executives. The complaint asserts causes of action under Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder, for common law fraud and negligence, and violation of New York General...

  • Page 89
    ... defendants opposed plaintiffs' motion for class certification. On August 15, 2006, the Court entered an order certifying a class ''consisting of all Participants in the Plans for whose individual accounts the Plans purchased and/or held shares of Tyco Stock Fund at any time from August 12, 1998...

  • Page 90
    ... and on October 3, 2006 filed a brief in support of his appeal. Tyco has initiated the process of collecting the restitution payment owed to it, and on November 17, 2006, the Supreme Court of the State of New York ordered $98 million to be released from an escrow account under the supervision of...

  • Page 91
    ...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 County, New York. On...

  • Page 92
    ... in Fire and Security received subpoenas from the SEC's Division of Enforcement seeking testimony related to past accounting practices for the ADT dealer connect fees. As previously reported in our periodic filings, these practices have been discontinued. The United States Department of Labor served...

  • Page 93
    ... shall discontinue making, offering to sell, selling or shipping any products that the court found infringed on the patents held by Masimo, but will continue to provide service and sensors for the previously sold products. Masimo Corporation v. Tyco Healthcare Group LP (''Tyco Healthcare'') and...

  • Page 94
    ....; Tyco Healthcare Group LP filed on November 22, 2005, South Jersey Hospital, Inc. v. Tyco International, Ltd., et al filed on January 24, 2006 and Deborah Heart and Lung Center v. Tyco International, Ltd., et al filed on January 27, 2006. In all twelve complaints the putative class representatives...

  • Page 95
    ...New Jersey Department of Environmental Protection regarding historic environmental compliance issues at a facility sold by Tyco in 2000. In a letter dated February 10, 2006, the U.S. Environmental Protection Agency proposed a penalty of $1,750,000 for alleged violations at this facility. The Company...

  • Page 96
    ... Contract price for additional dewatering services and the Computer Control System; and (iv) costs for demobilization and termination of the contract. The City of Phoenix filed a Motion to Dismiss rather than filing an answer to the First Amended Complaint on May 18, 2006. The Court granted the City...

  • Page 97
    ... 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, 2006 was 46,148. Tyco common shares are listed and traded on the New York Stock Exchange (''NYSE'') and...

  • Page 98
    ... incremental stock option charges required under Statement of Financial Accounting Standards (''SFAS'') No. 123R, ''Share-Based Payment,'' $72 million of income related to a settlement with a former executive and $48 million of income resulting from a reduction in our estimated workers' compensation...

  • Page 99
    ... $245 million, additional changes in estimates $361 which arose from the Company's intensified internal audits and detailed controls and operating reviews, a charge of $91 million for a retroactive incremental premium on prior period directors and officers insurance, a loss related to the retirement...

  • Page 100
    ...% of named executive officers and Section 16 officers and directors. The Company's review included an evaluation of grant authorizations, an assessment of the appropriate measurement dates under Accounting Principles Board (''APB'') Opinion No. 25, ''Accounting for Stock Issued to Employees,'' and...

  • Page 101
    ... relating to the Company's stock option accounting primarily resulted from: (a) incomplete documentation to enable application of accounting principles under APB Opinion No. 25; (b) the unintentional misapplication of generally accepted accounting principles; and (c) the absence of adequate control...

  • Page 102
    ... filed on December 9, 2005 and have been reclassified for the effects of discontinued operations. Years Ended September 30, 2005 2004 ($ in millions) Operating income, as previously reported ...Adjustments: Prior Period Stock Option Grant Practices ...Equity Plan Compliance ...Decrease ...Operating...

  • Page 103
    ... way to position our market-leading companies for sustained growth and value creation. Following the Proposed Separation, Tyco's shareholders will own 100% of the equity in all three companies through tax-free stock dividends. Each company will have its own independent Board of 2006 Financials 41

  • Page 104
    ... of certain tax rulings, necessary opinions of counsel, the filing and effectiveness of registration statements with the Securities and Exchange Commission (''SEC'') and the completion of any necessary debt refinancings. Approval by the Company's shareholders is not required as a condition to the...

  • Page 105
    ... points to 13.4%. Operating income for 2006 was unfavorably impacted by charges of $426 million, consisting of separation costs of $169 million; incremental stock option charges of $161 million as required under Statement of Financial Accounting Standards (''SFAS'') No. 123R, ''Share-Based Payment...

  • Page 106
    ... to an SEC enforcement action of $50 million and a charge relating to former executives' employment of $70 million. Foreign currency exchange rates favorably affected operating income by $142 million. Results by Geographic Area Net revenue by geographic area for the years ended September 29, 2006...

  • Page 107
    ...sales includes sales and installation of security, fire protection and other systems. Net revenue increased due to growth in Worldwide Fire Protection Contracting and Services primarily related to electrical and mechanical contracting as well as growth in the North American and international markets...

  • Page 108
    ... products at Tyco Safety Products as well as growth in our European fire services business. These increases were offset by the impact of divestitures of $315 million and decreased sales at our security business in Europe. Operating income increased $317 million in 2005 over the prior year. Results...

  • Page 109
    ...by Flow Control as a result of strong project volume in the Pacific Region and favorable market conditions in Asia and North America, as well as increased selling prices in Electrical & Metal Products due to higher costs of copper. To a lesser extent, Tyco Fire & Building Products experienced growth...

  • Page 110
    ... related to the review of prior period stock option grant practices and equity plan compliance. See Note 1 to the Consolidated Financial Statements. Corporate expense for 2005 includes a $301 million gain on the sale of the TGN business and TGN operating losses of $54 million. In addition, corporate...

  • Page 111
    ... costs. Also during 2005, other expense, net included income of $109 million related to a court-ordered restitution award. 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...

  • Page 112
    ...a material impact on the financial condition, results of operations or cash flows of the Company. During 2006, the Company has developed amendments to U.S. federal income tax returns for additional periods. On the basis of previously accepted amendments, the Company has determined that acceptance of...

  • Page 113
    ...resin prices during fiscal year 2006, as contemplated in the definitive sale agreement. This amount is payable to Tyco no later than January 2007. Net cash proceeds received for the sale of the A&E Products business was $2 million, which does not include working capital provisions which are expected...

  • Page 114
    ...cost of sales, in connection with the divestiture and liquidation of these businesses, as well as the write-down to estimated fair value of certain held for sale businesses. During 2006, the Company divested 6 businesses that were reported as continuing operations in Fire and Security and Healthcare...

  • Page 115
    ... of accounting change which resulted in a $14 million after-tax loss ($22 million pre-tax). Refer to Note 1 to the Consolidated Financial Statements for additional information on FIN No. 47. During 2005, the Company changed the measurement date for its pension and postretirement benefit plans, from...

  • Page 116
    ... and 15.1% on a trailing 12-month basis for 2006, 2005 and 2004, respectively. Revenue Recognition-Contract sales for the installation of fire protection systems, large security intruder systems, undersea fiber-optic cable systems and other construction related projects are recorded primarily on the...

  • Page 117
    ...the future. Management is not aware of any such changes that would have a material effect on the Company's results of operations, cash flows or financial position. In addition, the calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax regulations in...

  • Page 118
    ...pension benefit obligations. A 25 basis point decrease in the discount rate would increase our present value of pension obligations by approximately $225 million. We consider the current and expected asset allocations of our pension plans, as well as historical and expected long-term rates of return...

  • Page 119
    ...Statements of Cash Flows. The change in working capital included an increase of $680 million in inventories and a $332 million decrease in accrued and other liabilities, primarily related to decreased accrued legal and audit fees, partially offset by an increase in annual employee bonus compensation...

  • Page 120
    ... cash provided by (used in) operating activities ...Other cash flow items: Capital expenditures, net ...Decrease in sale of accounts receivable ...Acquisition of customer accounts (ADT dealer program) ...Purchase accounting and holdback liabilities ...Voluntary pension contributions . . ... $ (549...

  • Page 121
    ...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 $1.6 billion in 2006 from $1.4 billion in 2005. The level of capital expenditures in 2007 is expected...

  • Page 122
    ... price per share. Additionally, the maximum number of shares that we may purchase each day would be governed by Rule 10b-18. On December 9, 2004, the Board of Directors approved an increase in the quarterly dividend on our common shares from $0.0125 to $0.10 per share. As a result, dividend payments...

  • Page 123
    ..., and a sharing agreement among the three companies will be established. The following table details our debt ratings at September 29, 2006 and September 30, 2005: Short Term Long Term Moody's ...Standard & Poor's ...Fitch ... Prime-3 A2 F2 Baa 3 BBB+ BBB+ The security ratings set forth above are...

  • Page 124
    ... 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 125
    ... the SEC Enforcement Division's investigation of the Company regarding certain accounting practices and other actions by former Tyco officers. On April 25, 2006, the United States District Court for the Southern District of New York entered a final judgment in which the Company was ordered to pay...

  • Page 126
    ... review being conducted by outside counsel, including, as appropriate, briefings concerning additional instances of potential improper payments identified by the Company in the course of its ongoing compliance activities. At this time, Tyco cannot predict the outcome of these matters reported...

  • Page 127
    ... bookings in North America and Europe. 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 29, 2006 and September...

  • Page 128
    ... Company's financial position, results of operations or cash flows. The Company records estimated product warranty costs at the time of sale. For further information on estimated product warranty, see Notes 1 and 16 to the Consolidated Financial Statements. In 2001, Engineered Products and Services...

  • Page 129
    ...-Effective October 1, 2005, Tyco adopted Statement of Financial Accounting Standards (''SFAS'') No. 123R, ''Share-Based Payment,'' which requires compensation costs related to share-based transactions, including employee stock options, to be recognized in the financial statements based on fair value...

  • Page 130
    ...-In September 2006, the FASB issued SFAS No. 158, ''Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans-an amendment of FASB Statements No. 87, 88, 106 and 132(R).'' SFAS No. 158 requires that employers recognize the funded status of defined benefit pension and other...

  • Page 131
    ...in which Tyco competes; • 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...

  • Page 132
    ... U.S. tax benefits resulting from Tyco's incorporation in Bermuda or deny U.S. government contracts to Tyco based upon its incorporation in Bermuda; and • the potential distraction costs associated with negative publicity relating to actions of our former senior corporate management. Additionally...

  • Page 133
    ... 6.4% 216 6.6% 6.5% 216 - - 375 - - 216 - - 7,231 - 1,676 - 56 - 1,009 - 13 - 827 - 43 - 30 - 52 - - (6) - - - - - Weighted-average variable interest rates are based on applicable rates at September 29, 2006 per the terms of the contracts of the related financial instruments. 2006 Financials 71

  • Page 134
    ... Pay Yen/Receive Euro ...Average contractual exchange rate . . Pay US$/Receive South Korean Won . . Average contractual exchange rate . . Pay US$/Receive New Zealand Dollars Average contractual exchange rate . . Pay Euro/Receive Canada Dollars ...Average contractual exchange rate . . Pay US$/Receive...

  • Page 135
    ...Dollar /Receive US$ ...Average contractual exchange rate ...Pay Canada Dollars /Receive US$ ...Average contractual exchange rate ...Pay Yen /Receive US$ ...Average contractual exchange rate ...Pay New Zealand Dollars /Receive US$ . Average contractual exchange rate ...Pay South African Rand /Receive...

  • Page 136
    ... been included in the consolidated financial statements and related notes or because they are either not applicable or not required under the rules of Regulation S-X. Information on quarterly results of operations is set forth in Note 26 to the Consolidated Financial Statements. Item 9. Changes in...

  • Page 137
    ...To ensure that our internal control over financial reporting continues to operate effectively and efficiently, we proactively identify opportunities for control improvements. During the fourth quarter of 2006, the Company initiated an internal review of its historical stock option grant practices to...

  • Page 138
    ...) 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 139
    ... 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 140
    ... Registrant's Definitive 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...

  • Page 141
    ...'s Post-Effective Amendment No. 2 to Registration Statement on Form S-3 (333-50855) filed on January 26, 1999). Supplemental Indenture No. 13, dated as of April 4, 2000 among Tyco International Group S.A., Tyco International Ltd. and the Bank of New York, as Trustee (Incorporated by reference to...

  • Page 142
    ... 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 143
    ...).(1) The Tyco International Ltd. Long Term Incentive Plan II (Incorporated by reference to Exhibit 10.1 to the Registrant's Registration Statement on Form S-8 (No. 333-75037) filed March 25, 1999).(1) Change in Control Severance Plan for Certain U.S. Officers and Executives dated January 1, 2005...

  • Page 144
    ... 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, 2002 filed on December 30, 2002).(1) Tyco Employee Stock...

  • Page 145
    ... ended March 31, 2006 filed May 9, 2006). Three-Year Credit Agreement dated as of December 22, 2003 among Tyco International Group S.A., Tyco International Ltd., Bank of America, N.A., as Paying Agent, the banks named therein, and Bank of America, N.A. and Citicorp North America, as CoAdministrative...

  • Page 146
    ... plan. 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) changed its name to Tyco International...

  • Page 147
    ... 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 8, 2006 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been...

  • Page 148
    ... * Jerome B. York Director Director Director 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...

  • Page 149
    TYCO INTERNATIONAL LTD. Index to Consolidated Financial Information Page Management's Responsibility for Financial Statements ...Reports of Independent Registered Public Accounting Firm . Consolidated Statements of Income ...Consolidated Balance Sheets ...Consolidated Statements of Shareholders' ...

  • Page 150
    ... Board and our Audit Committee are all committed to excellence in governance, financial reporting and controls. /s/ EDWARD D. BREEN Edward D. Breen Chairman and Chief Executive Officer /s/ CHRISTOPHER J. COUGHLIN Christopher J. Coughlin Executive Vice President and Chief Financial Officer 88 2006...

  • Page 151
    ... 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 152
    ...REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Shareholders 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 153
    ... 2006 of the Company and our report dated December 8, 2006 expressed an unqualified opinion on those financial statements and financial statement schedule and included explanatory paragraphs regarding the Company's adoption of Statement of Financial Accounting Standards No. 123R, Share-Based Payment...

  • Page 154
    TYCO INTERNATIONAL LTD. CONSOLIDATED STATEMENTS OF INCOME Years ended September 29, 2006, September 30, 2005 and 2004 (in millions, except per share data) 2005 (Restated) 2004 (Restated) 2006 Revenue from product sales ...Service revenue ...Net revenue ...Cost of product sales ...Cost of services ...

  • Page 155
    TYCO INTERNATIONAL LTD. CONSOLIDATED BALANCE SHEETS As of September 29, 2006 and September 30, 2005 (in millions, except share data) 2006 2005 (Restated) Assets Current Assets: Cash and cash equivalents ...Accounts receivable, less allowance for doubtful respectively ...Inventories ...Prepaid ...

  • Page 156
    ... share grants, net of forfeitures ...Share options exercised, including tax expense of $13 ...Repurchase of common shares by subsidiary ...Compensation expense ...Exchange of convertible debt ...Other ...Balance at September 29, 2006 ... See Notes to Consolidated Financial Statements. 94 2006...

  • Page 157
    TYCO INTERNATIONAL LTD. CONSOLIDATED STATEMENTS OF CASH FLOWS Years Ended September 29, 2006, September 30, 2005 and 2004 (in millions) 2006 Cash Flows From Operating Activities: Net income ...Loss from discontinued operations, net of income taxes ...Cumulative effect of accounting change, net of ...

  • Page 158
    ...% of named executive officers and Section 16 officers and directors. The Company's review included an evaluation of grant authorizations, an assessment of the appropriate measurement dates under Accounting Principles Board (''APB'') Opinion No. 25, ''Accounting for Stock Issued to Employees,'' and...

  • Page 159
    TYCO INTERNATIONAL LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Basis of Presentation, Restatement and Summary of Significant Accounting Policies (Continued) Review of Equity Plan Compliance Separately, the Company identified an error related to the recognition of compensation expense under...

  • Page 160
    ... filed on December 9, 2005 and have been reclassified for the effects of discontinued operations. Years Ended September 30, 2005 2004 ($ in millions) Operating income, as previously reported ...Adjustments: Prior Period Stock Option Grant Practices ...Equity Plan Compliance ...Decrease ...Operating...

  • Page 161
    ... its operating subsidiaries. The Company is a global, diversified company that provides products and services in four business segments: Electronics, Fire and Security, Healthcare and Engineered Products and Services (see Note 23). The Company consolidates companies in which it owns or controls more...

  • Page 162
    ...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 163
    ..., of accounts receivable were unbilled related to long-term contracts. Research and Development-Research and development expenditures are expensed when incurred and are included in cost of product sales. Research and development expenses include salaries, direct costs incurred and building and...

  • Page 164
    ... systems ...Other machinery, equipment and furniture and fixtures ...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...

  • Page 165
    ... balance method based on a ten-year life for the first eight years of the estimated life of the customer relationship, converting to the straight-line method of amortization for the remaining four years of the estimated relationship period. Actual attrition data is regularly reviewed in order...

  • Page 166
    ... based on historical information such as past experience, product failure rates or number of units repaired, estimated cost of material and labor, and in certain instances estimated property damage. Environmental Costs-Tyco is subject to laws and regulations relating to protecting the environment...

  • Page 167
    ... Accounting Standards (''SFAS'') No. 123R, ''Share-Based Payment,'' which requires compensation costs related to share-based transactions, including employee stock options, to be recognized in the financial statements based on fair value. SFAS No. 123R revises SFAS No. 123, as 2006 Financials...

  • Page 168
    ... Accounting Principles Board (''APB'') Opinion No. 25, ''Accounting for Stock Issued to Employees.'' Tyco adopted SFAS No. 123R using the modified prospective application transition method. Under this method, compensation cost is recognized for the unvested portion of share-based payments granted...

  • Page 169
    ...-In September 2006, the FASB issued SFAS No. 158, ''Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans-an amendment of FASB Statements No. 87, 88, 106 and 132(R).'' SFAS No. 158 requires that employers recognize the funded status of defined benefit pension and other...

  • Page 170
    ...resin prices during fiscal year 2006, as contemplated in the definitive sale agreement. This amount is payable to Tyco no later than January 2007. Net cash proceeds received for the sale of the A&E Products business was $2 million, which does not include working capital provisions which are expected...

  • Page 171
    ... value used for the impairment assessment was primarily based on the terms and conditions included or expected to be included in the sales agreements. Net revenue, income from operations, loss on sale and income taxes for discontinued operations for 2006, 2005 and 2004 are as follows ($ in millions...

  • Page 172
    ... and conditions included or expected to be included in the sales agreements. Businesses held for sale Balance sheet information for discontinued operations and other businesses held for sale at September 29, 2006 and September 30, 2005 is as follows ($ in millions): 2006 2005 Accounts receivable...

  • Page 173
    .... During 2006, the Company paid $21 million related to these actions and has $9 million accrued as of September 29, 2006. 2005 Charges and Credits During 2005, the Company recorded restructuring charges of $6 million, including $1 million reflected in cost of sales for the non-cash write down in...

  • Page 174
    ...million related to 2004 restructuring plans, including $4 million reflected in cost of sales for the non-cash write down in carrying value of inventory. Additionally, Fire and Security completed certain restructuring activities announced in prior years for amounts less than originally estimated, and...

  • Page 175
    TYCO INTERNATIONAL LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 4. Restructuring and Other Charges (Credits), Net (Continued) carrying value of inventory. Additionally, during 2004, Electronics sold certain cable-laying sea vessels and other assets that were impaired in prior years for amounts ...

  • Page 176
    ...to its estimated fair 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. 6. Acquisitions...

  • Page 177
    ... Engineered Products and Services and Fire and Security for an aggregate cost of $9 million. These acquisitions were funded utilizing cash from operations. The results of operations of the acquired companies have been included in Tyco's consolidated results from the respective acquisition dates...

  • Page 178
    ... costs. Also during 2005, other expense, net included income of $109 million related to a court-ordered restitution award. 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...

  • Page 179
    ... million favorable adjustment related to a correction to 2005 tax reserves on legacy tax matters and a $31 million unfavorable adjustment associated with proposed corrections to prior period income tax returns. Included in loss on retirement of debt in 2006 is a cumulative one-time benefit of $243...

  • Page 180
    TYCO INTERNATIONAL LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 8. Income Taxes (Continued) favorable tax ruling in the fourth quarter of 2006 permitting the deduction of debt retirement costs. This benefit is partially offset by an increased valuation allowance of $173 million relating to the...

  • Page 181
    ... Company's Consolidated Financial Statements under the accelerated reporting deadlines. As a result of this change, the Company recorded a $21 million after-tax gain ($28 million pre-tax) cumulative effect of accounting change. Refer to Note 19 for additional information on retirement plans. 2006...

  • Page 182
    ... The sale proceeds were less than the face amount of accounts receivable sold, and the discount from the face amount was included in selling, general and administrative expenses in the Consolidated Statements of Income. Such discount aggregated $18 million, or 3.1% of the weighted-average balance of...

  • Page 183
    TYCO INTERNATIONAL LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 12. Investments At September 29, 2006 and September 30, 2005, Tyco had available-for-sale investments with a fair market value of $318 million and $265 million and a cost basis of $323 million and $268 million, respectively. These...

  • Page 184
    ... Company's Key Employee Loan Program, which is now discontinued except for outstanding loans for the payment of taxes upon the vesting of shares granted under our Restricted Share Ownership Plans. The loans are not collateralized and bear interest, payable annually, at a rate based on the six-month...

  • Page 185
    ...2005 include loans to Mark A. Belnick, the Company's former Executive Vice President and Chief Corporate Counsel. The amount outstanding under these loans at September 30, 2005 was $15 million and was repaid in 2006. During the fourth quarter of 2002, the Board of Directors and new senior management...

  • Page 186
    ... engaged in the sale of Tyco securities in the State of New York. The SEC action alleged that Mr. Walsh knew that the registration statement covering the sale of Tyco securities as part of the CIT Group acquisition contained a material misrepresentation concerning fees payable in connection with...

  • Page 187
    ... portion of long-term debt as of September 29, 2006. These instruments, plus $230 million of the amount shown as other, comprise the current portion of long-term debt as of September 29, 2005. (2) Tyco International Group S.A., a wholly-owned subsidiary of the Company organized under the laws of...

  • Page 188
    TYCO INTERNATIONAL LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 15. Debt (Continued) On January 26, 2006, the Company repaid and terminated one of its synthetic lease facilities used to finance capital expenditures for manufacturing machinery and equipment for a total cash payment of $203 ...

  • Page 189
    ...the time of sale. For further information on estimated product warranty, see Note 1. Following is a roll forward of the Company's warranty accrual for 2006 ($ in millions): Balance at September 30, 2005 . . Warranties issued during the year Changes in estimates ...Settlements ...Currency translation...

  • Page 190
    ... FINANCIAL STATEMENTS 16. Guarantees (Continued) was reflected in cost of sales. Settlements during 2006 include cash expenditures of $37 million related to the VRP. 17. Financial Instruments The Company's financial instruments consist primarily of cash and cash equivalents, accounts receivable...

  • Page 191
    TYCO INTERNATIONAL LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 17. Financial Instruments (Continued) result in a significant loss to the Company if a counterparty failed to perform according to the terms of its agreement. At this time, the Company does not require collateral or other security ...

  • Page 192
    ... has the option to buy these vessels for approximately $280 million, or return the vessels to the lessor and, under a residual guarantee, pay any shortfall in sales proceeds to the lessor from a third party in an amount not to exceed $235 million. As of September 29, 2006, the Company expected this...

  • Page 193
    ...members of our Board of Directors and the Company's current Chief Executive Officer and General Counsel and former Chief Financial 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...

  • Page 194
    ... the SEC Enforcement Division's investigation of the Company regarding certain accounting practices and other actions by former Tyco officers. On April 25, 2006, the United States District Court for the Southern District of New York entered a final judgment in which the Company was ordered to pay...

  • Page 195
    ... will discontinue making, offering to sell, selling or shipping any products that the court found infringed on the patents held by Masimo, but will continue to provide service and sensors for the previously sold products. Masimo Corporation v. Tyco Healthcare Group LP (''Tyco Healthcare'') and...

  • Page 196
    ... the federal antitrust laws. The Company will respond to these complaints and intends to vigorously defend the actions. At this time, it is not possible to estimate the amount of loss or probable losses, if any, that might result from an adverse resolution of these matters. As previously reported in...

  • Page 197
    ... related to AROs during 2006. The Company believes that any potential payment of such estimated amounts will not have a material adverse effect on its financial position, results of operations or cash flows. See further discussions on the implementation of FIN No. 47 in Note 1. Asbestos Matters Tyco...

  • Page 198
    ... impact on the Company's financial condition, results of operations or cash flows. Compliance Matters Tyco has received and responded to various allegations that certain improper payments were made by Tyco subsidiaries in recent years. During 2005, Tyco reported to the U.S. Department of Justice...

  • Page 199
    ... Contract price for additional dewatering services and the Computer Control System; and (iv) costs for demobilization and termination of the contract. The City of Phoenix filed a Motion to Dismiss rather than filing an answer to the First Amended Complaint on May 18, 2006. The Court granted the City...

  • Page 200
    ... plans from September 30th to August 31st, effective October 1, 2004. The Company believes that the one-month change of measurement date is a preferable change as it allows management adequate time to evaluate and report the actuarial information in the Company's Consolidated Financial Statements...

  • Page 201
    TYCO INTERNATIONAL LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 19. Retirement Plans (Continued) The change in benefit obligations, plan assets and the amounts recognized on the Consolidated Balance Sheets for all U.S. and non-U.S. defined benefit plans at September 29, 2006 and September 30, ...

  • Page 202
    ... of its own stock as a direct investment for its pension funds, due to external investment management of the funds, the plans may indirectly hold Tyco stock. The aggregate amount of the shares would not be considered material relative to the total fund assets. The Company's funding policy is to make...

  • Page 203
    TYCO INTERNATIONAL LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 19. Retirement Plans (Continued) Benefit payments, including those amounts to be paid out of corporate assets and reflecting future expected service as appropriate, are expected to be paid as follows ($ in millions): U.S. Plans ...

  • Page 204
    ...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 Canadian operations provide on going eligibility for such benefits. Net periodic postretirement benefit cost for 2006...

  • Page 205
    .... At September 29, 2006 and September 30, 2005, the composite annual rate of increase in health care benefit costs was assumed to decrease gradually to 5.0% by the year 2013 and remain at that level thereafter. A one-percentage-point change in assumed healthcare cost trend rates would have...

  • Page 206
    ... Share Plans As previously mentioned, the Company recorded compensation amounts for prior periods related to errors in the Company's stock option accounting and in the recognition of expense under the Company's employee stock purchase program in the United Kingdom. As such, the reported results for...

  • Page 207
    TYCO INTERNATIONAL LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 21. Share Plans (Continued) As a result of the adoption of SFAS No. 123R, the Company's results for the year ended September 29, 2006 include incremental share-based compensation expense of $161 million. The total share-based ...

  • Page 208
    ...equal annual installments over a period of three years and will generally expire 10 years after the date of grant. Options assumed as part of business combination transactions are administered under Tyco's plan but do not reduce the available shares and retain all the rights, terms and conditions of...

  • Page 209
    ...-U.S. subsidiaries. The terms of these plans provide for the Company to grant to its employees the right to purchase shares of the Company's stock at a stated price and receive certain tax benefits. Under one plan, operated in Ireland, eligible employees are offered the opportunity to acquire shares...

  • Page 210
    ... of service at 85% of the market price at the time of grant. Options under the SAYE Plan are generally exercisable after a period of three years and expire six months after the date of vesting. The SAYE Plan provides for a maximum of 10 million common shares to be issued; as of September 29, 2006...

  • Page 211
    TYCO INTERNATIONAL LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 21. Share Plans (Continued) awards is determined based on the market value of the Company's shares on the grant date. Restricted share awards generally vest after a period of three years, as determined by the Compensation ...

  • Page 212
    ... INTERNATIONAL LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 21. Share Plans (Continued) three years. The Company has granted 2 million DSUs, of which all but 0.1 million were outstanding at September 29, 2006. A summary of the status of the Company's DSUs as of September 29, 2006 and changes...

  • Page 213
    TYCO INTERNATIONAL LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 23. Consolidated Segment and Geographic Data The Company's segments are strategic business units that operate in different industries and are managed separately. Certain corporate expenses were allocated to each segment's ...

  • Page 214
    ... been restated to reflect additional compensation expense of $24 million and $85 million, respectively, related to the review of prior period stock option grant practices and equity plan compliance. See Note 1. (2) Net revenue by groups of products within Tyco's segments for 2006, 2005 and 2004 is...

  • Page 215
    ... and amortization and capital expenditures, net by segment for the years ended September 29, 2006, September 30, 2005 and 2004 are as follows ($ in millions): 2006 2005 2004 Depreciation and amortization: Electronics ...Fire and Security ...Healthcare ...Engineered Products and Services Corporate...

  • Page 216
    ... FINANCIAL STATEMENTS 23. Consolidated Segment and Geographic Data (Continued) Net revenue by geographic area for the years ended September 29, 2006, September 30, 2005 and 2004 is as follows ($ in millions): 2006 2005 2004 Net revenue : United States . . Other Americas . Europe ...Asia-Pacific...

  • Page 217
    TYCO INTERNATIONAL LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 25. Supplementary Balance Sheet and Cash Flow Information Selected supplementary balance sheet information as of September 29, 2006 and September 30, 2005 is as follows ($ in millions): 2006 2005 Purchased materials and ...

  • Page 218
    ... $2 million is included in cost of sales, the write-off of purchased in-process research and development of $2 million, incremental stock option charges of $48 million, and separation costs of $8 million. Net revenue excludes $281 million of revenue related to discontinued operations. Income from...

  • Page 219
    ...of which $1 million is included in cost of sales, a $50 million charge related to an SEC enforcement action, and a loss of $573 million related to the retirement of debt. Net revenue excludes $565 million of revenue related to discontinued operations. Income from continuing operations includes a net...

  • Page 220
    ...accounting for subsidiaries. CONSOLIDATING STATEMENT OF INCOME For the Year Ended September 29, 2006 ($ in millions) Tyco Tyco International International Other Ltd. Group S.A. Subsidiaries Consolidating Adjustments Total Net revenue ...Cost of product sales ...Cost of services ...Selling, general...

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    ... (Continued) CONSOLIDATING STATEMENT OF INCOME (RESTATED) For the Year Ended September 30, 2005 ($ in millions) Tyco Tyco International International Other Ltd. Group S.A. Subsidiaries Consolidating Adjustments Total Net revenue ...Cost of product sales ...Cost of services ...Selling, general and...

  • Page 222
    ... (Continued) CONSOLIDATING STATEMENT OF INCOME (RESTATED) For the Year Ended September 30, 2004 ($ in millions) Tyco Tyco International International Other Ltd. Group S.A. Subsidiaries Consolidating Adjustments Total Net revenue ...Cost of product sales ...Cost of services ...Selling, general and...

  • Page 223
    TYCO INTERNATIONAL LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 27. Tyco International Group S.A. (Continued) CONSOLIDATING BALANCE SHEET September 29, 2006 ($ in millions) Tyco International Ltd. Tyco International Group S.A. Other Subsidiaries Consolidating Adjustments Total Assets ...

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    .... Tyco International Group S.A. Other Subsidiaries Consolidating Adjustments Total Assets Current Assets: Cash and cash equivalents ...Accounts receivable, net ...Inventories ...Intercompany receivables ...Prepaid expenses and other current assets ...Deferred income taxes ...Assets held for sale...

  • Page 225
    ... STATEMENT OF CASH FLOWS For the Year Ended September 29, 2006 ($ in millions) Tyco Tyco International International Other Ltd. Group S.A. Subsidiaries Consolidating Adjustments Total Cash Flows From Operating Activities: Net cash provided by operating activities ...Net cash used in discontinued...

  • Page 226
    ... exercise of share options ...Dividends paid ...Repurchase of common shares by subsidiary . . Loan repayments to parent ...Transfer to discontinued operations ...Other ...Net cash used in financing activities ...Net cash used in discontinued financing activities ...Effect of currency translation on...

  • Page 227
    ...exercise of share options ...Dividends paid ...Repurchase of common shares by subsidiary . . Loan repayments to parent ...Transfer from discontinued operations ...Other ...Net cash used in financing activities ...Net cash used in discontinued financing activities ...Effect of currency translation on...

  • Page 228
    ... New York ordered $98 million to be released from an escrow account under the supervision of the Manhattan District Attorney to Tyco on January 2, 2007 in relation to the restitution owed by L. Dennis Kozlowski, former Chairman and Chief Executive Officer. On October 31, 2006, the Company exercised...

  • Page 229
    TYCO INTERNATIONAL LTD. SCHEDULE II-VALUATION AND QUALIFYING ACCOUNTS (in millions) Additions Acquisitions, Balance at Charged to Divestitures Beginning of Year Income and Other Description Balance at Deductions End of Year Accounts Receivable: Year Ended September 30, 2004 ...Year Ended ...

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    2006 Financials

  • Page 231
    ... 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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    TYCO INTERNATIONAL LTD. 2nd Floor 90 Pitts Bay Road Pembroke HM 08, Bermuda www.tyco.com