ADT 2006 Annual Report Download - page 100

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition and results of operations including
the effects of the restatement described in Note 1 to the Consolidated Financial Statements should be
read together with the Selected Financial Data and our Consolidated Financial Statements and the
related notes included elsewhere in this Annual Report. This discussion and analysis contains forward-
looking statements that involve risks, uncertainties and assumptions. Our actual results may differ
materially from those anticipated in these forward-looking statements due to many factors, including
but not limited to those under the headings ‘‘Risk Factors’’ and ‘‘Forward-Looking Information.’’
Introduction
The Consolidated Financial Statements include the consolidated accounts of Tyco
International Ltd., a company organized under the laws of Bermuda, and its subsidiaries (hereinafter
collectively referred to as ‘‘we,’’ the ‘‘Company’’ or ‘‘Tyco’’) and have been prepared in United States
dollars, in accordance with accounting principles generally accepted in the United States (‘‘GAAP’’).
The Company operates in the following business segments:
• Electronics designs, manufactures and distributes electrical and electronic components and
related solutions;
• Fire and Security designs, manufactures, installs, monitors and services electronic security and
fire protection systems;
• Healthcare designs, manufactures and distributes medical devices and supplies, imaging agents,
pharmaceuticals and adult incontinence and infant care products; and
• Engineered Products and Services designs, manufactures, distributes and services engineered
products, including industrial valves and controls, as well as steel tubular goods, and provides
consulting, engineering and construction management and operating services.
The operating results of the Tyco Global Network (‘‘TGN’’) business are presented within
Corporate through the date of its disposal in the third quarter of 2005.
Restatement
Review of Prior Period Stock Option Grant Practices
Following publicity in 2006 regarding the granting of stock options at a number of companies, the
Company initiated an internal review of its historical stock option grant practices to determine whether
the Company’s stock option award actions were appropriately governed and were accurately reflected in
the Company’s financial statements. The Company’s Internal Audit staff, which reports directly to the
Audit Committee of the Board of Directors, began a review of the Company’s equity incentive plan
practices and associated approvals over the period October 1999 through June 2006. In addition to its
review of plan administration, the Internal Audit staff performed detailed audit procedures on more
than 95% of share options granted through the regular and off-cycle grants during this period. The
audit procedures covered 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 the application of appropriate equity pricing methodology.
The Company has determined that between October 1999 and 2002, there were several grants for
which complete documentation was not available. As such, validation of the appropriate measurement
date under APB Opinion No. 25 was difficult to determine with precision. For such grants, the
Company determined an appropriate measurement date in reliance upon all available evidence and
38 2006 Financials