ADT 2007 Annual Report Download

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TYCO INTERNATIONAL
2007 Annual Report

Table of contents

  • Page 1
    TYCO INTERNATIONAL 2007 Annual Report

  • Page 2

  • Page 3
    ... the start of a new chapter in Tyco International's history with the spin-offs of our electronics and healthcare businesses. On the pages that follow, we provide an overview of Tyco International today, including our portfolio of leading businesses and brands, and our opportunities for long-term...

  • Page 4
    ...Continuing Operations Before Special Items** Total Assets* Long-term Debt* Shareholders' Equity* 14.4% Flow Control 8.4% Electrical & Metal Products 8.2% Fire Protection Services 12.7% ADT Worldwide 4.8% Fire Protection Services 0.2% Electrical & Metal Products 05 06 07 2007 ORGANIC REVENUE...

  • Page 5
    ... as product, installation and service revenue. For the year, Tyco International reported a net loss from continuing operations of $2.5 billion, or $5.09 per diluted share. The loss was due primarily to a $2.9 billion agreement we reached in May to settle class-action lawsuits involving the company...

  • Page 6
    ...7H/B7=< TOTAL REVENUE (in US$ billions) TOTAL OPERATING INCOME BEFORE SPECIAL ITEMS** (in US$ billions) $516 $558 2007 REVENUE BY REGION (in US$ billions) ($5.09) %& AVO`SV]ZRS`a¸ 3_cWbg $5.5 $8.9 UNITED STATES EUROPE, MIDDLE EAST AND AFRICA $3.0 ASIA PACIFIC 05 06 07 CAPITAL EXPENDITURES...

  • Page 7
    ... per share. THE NEW TYCO The company is organized around the following five business segments: • ADT Worldwide, the world's largest provider of electronic security products and alarm-monitoring services to residential, commercial, industrial and government customers. • Fire Protection Services...

  • Page 8
    ..., Executive Vice President and General Counsel; (standing left to right) Patrick Decker, President, Flow Control; Laurie Siegel, Senior Vice President, Human Resources; Naren Gursahaney, President, ADT Worldwide; Edward C. Arditte, Senior Vice President, Strategy and Investor Relations; George...

  • Page 9
    ... position in markets around the world.We pledge that we will continue to work tirelessly in the years ahead to advance Tyco International for our customers, our employees and for you, our shareholders. We thank you for your loyalty and support. EDWARD D. BREEN Chairman and Chief Executive...

  • Page 10
    ..., international companies, ADT provides a full portfolio of security and safety solutions, backed by dedicated and responsive local service teams. Our global strength and local service are why customers around the world put their trust in us. ADT. Always there.® MONITORING | ACCESS CONTROL | VIDEO...

  • Page 11
    OUR BUSINESSES Fire Protection Services Tyco Fire Protection Services helps make the world safer by delivering the industry's leading products, solutions and services. Our electronic fire alarm systems feature intelligent, ï¬,exible control panels and early warning smoke detectors. In all our fi...

  • Page 12
    ... commercial and industrial facilities worldwide. Tyco Safety Products designs, manufactures and sells products across three key business platforms: electronic security, life safety and fire suppression. Our diverse product lines comprise intrusion security, access control, video management systems...

  • Page 13
    ...solutions for a variety of industrial, residential and commercial uses, including oil and gas, power, food and beverage, chemical, water and other process industries. Tyco Flow Control has more than 100 manufacturing and service locations in 24 countries, supporting our global customer base. Market...

  • Page 14
    ... 45 manufacturing and distribution facilities worldwide, Tyco Electrical & Metal Products supplies global customers with innovative products and outstanding service. LEADING BRANDS: 2 billion feet of tube and pipe manufactured in 2007 75% of U.S. electrical wholesalers stock our products 350,000...

  • Page 15
    ...of Annual General Meeting and Proxy Statement. We hope you are planning to attend the meeting. Your vote is important. Whether or not you are able to attend, it is important that your common shares be represented at the meeting. Accordingly, we ask that you please complete, sign, date and return the...

  • Page 16

  • Page 17
    .... 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, Judith A. Reinsdorf Executive Vice President and General Counsel January 25, 2008 PLEASE PROMPTLY COMPLETE, SIGN, DATE AND RETURN...

  • Page 18

  • Page 19
    ......Elements of Compensation ...Tax Deductibility of Executive Compensation ...Change in Control and Severance Benefits ...Pay Recoupment Policy ...Stock Ownership Guidelines ...Compensation and Human Resources Committee Report on Executive Executive Compensation Tables ...Compensation ... SECTION 16...

  • Page 20
    ... NUMBER THREE-AMENDMENTS TO THE COMPANY'S BYE-LAWS ...OTHER MATTERS ...Costs of Solicitation ...Presentation of Financial Statements ...Registered and Principal Executive Offices ...Shareholder Proposals for the 2009 Annual General Meeting United States Securities and Exchange Commission Reports...

  • Page 21
    ... 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 trustees of these plans how to vote the common shares represented by their...

  • Page 22
    .... • Amendments to the Company's Bye-laws to allow the Company to hold its shares in treasury and to expressly authorize the Controller officership. Other than matters incident to the conduct of the Annual General Meeting and those set forth in this Proxy Statement, Tyco does not know of any...

  • Page 23
    ...? 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 their broker...

  • Page 24
    ... at the Annual General Meeting, the proxies received from our shareholders give the proxy holders the authority to vote on the matter at their discretion. Mellon Investor Services will act as the inspector of election and will tabulate the votes. You can access Tyco's annual report and proxy...

  • Page 25
    ... at the 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 12, 2008 by hand or mail at: Tyco International Ltd. Second...

  • Page 26
    ... and monitors top management, provides oversight for financial reporting and legal compliance, determines Tyco's governance principles and implements its governance policies. The Board, together with management, is responsible for establishing the Company's values and code of conduct and for setting...

  • Page 27
    ... ensure Tyco remains an employer of choice. Operational Excellence: Implement best-in-class operating practices and leverage Company-wide opportunities and best practices. Financial Strength & Flexibility: Ensure that revenue, earnings per share (EPS), cash and return on invested capital objectives...

  • Page 28
    ... otherwise. The Company has adopted a counterbalancing governance structure, including: • a designated lead Director; • a substantial majority of independent Directors; • annual election of Directors by a majority of votes cast at the annual general meeting of shareholders; • committees...

  • Page 29
    ... informed about Company operations and issues. One of these meetings will be scheduled in conjunction with the Company's annual general meeting and board members are required to be in attendance at the annual general meeting either in person or by telephone. The lead Director, in consultation with...

  • Page 30
    ...of the Board of Directors. A report summarizing all items received resulting in cases is prepared for the Board. The Corporate Ombudsman directs cases to the applicable department (such as customer service, human resources or in the cases of accounting, audit or internal controls-forensic audit) and...

  • Page 31
    ... after two years. Directors who are Company officers receive no additional compensation for service as Directors. Director Independence To maintain its objective oversight of management, the Board consists of a substantial majority of independent Directors. Directors meet stringent definitions of...

  • Page 32
    ... by another publicly traded company on whose Board of Directors the Tyco Chief Executive Officer or other member of senior management serves; • do not serve as, nor does any immediate family member serve as, an executive officer of any entity which the Company's annual sales to or purchases...

  • Page 33
    ... and Chief Accounting Officer, as well as all other employees. 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 (''NYSE''). The Guide to Ethical Conduct is posted on our website at www.tyco...

  • Page 34
    ... special committee meeting that he or she attends. A Director who is also an employee receives no additional remuneration for services as a Director. Non-Employee Director Compensation Table Fees Earned or Paid in Cash ($)(1) Stock Awards ($)(2) All Other Compensation ($)(3) Name Total ($) Adm...

  • Page 35
    ... results of funds available under the Company's 401(k) retirement savings and investment plans. Each Director may elect to receive a distribution of the amounts credited to his or her deferred compensation account in a lump sum cash payment either at termination from the Board or at a future date...

  • Page 36
    ... Executive Officer of General Instrument Corporation from December 1997 to January 2000; and, prior to December 1997, President of General Instrument's Broadband Networks Group. Mr. Breen also serves as a director of Comcast Corporation and is a member of the Advisory Board of New Mountain Capital...

  • Page 37
    ...Director, and was promoted to Chief Executive Officer in 1999. Prior to Dr. O'Neill's career at ICI, he held numerous positions at Guinness PLC, including Chief Executive of Guinness Brewing Worldwide Ltd, Managing Director International Region of United Distillers, and Director of Financial Control...

  • Page 38
    ..., Ms. Wijnberg was the Senior Vice President and Chief Financial Officer at Marsh & McLennan Companies, Inc., a professional services firm with insurance and reinsurance brokerage, consulting and investment management businesses. Before joining Marsh & McLennan Companies, Inc. Ms. Wijnberg served as...

  • Page 39
    ...qualified to become Board members, recommending to the Board the Director nominees for the annual general meeting 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...

  • Page 40
    ... to accounting and finance, management and leadership, vision and strategy, business operations, business judgment, crisis management, risk assessment, industry knowledge, corporate governance and global markets. When the Committee reviews a potential new candidate, the Committee looks specifically...

  • Page 41
    ... shares were acquired, as required by the Company's Amended and Restated Bye-laws. To be considered by the Nominating and Governance Committee for nomination and inclusion in the Company's proxy statement for the 2009 Annual General Meeting of Shareholders, shareholder recommendations for Director...

  • Page 42
    ... 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 December 1989 to August 2000. Judith A. Reinsdorf-Ms. Reinsdorf, age 44, has been our Executive Vice President and General Counsel...

  • Page 43
    ... OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth the number of shares of common stock beneficially owned as of October 1, 2007 by each current Director, nominee for Director, executive officer named in the Summary Compensation Table under ''Executive Officer...

  • Page 44
    ... Schedule 13G/A includes 862,165 common shares (on a post-reverse stock split basis) resulting from the assumed conversion of $75,000,000 principal amount of the Tyco International Group S.A. 3.125% Series B Senior Convertible Debentures due 2023 held by Capital Research and Management Company. The...

  • Page 45
    ... and Davidson. Includes the grant date (November 21, 2006) fair value of stock options and RSUs awarded to the named executive officers for fiscal 2007. Includes (i) salary paid for fiscal 2007, (ii) actual performance bonus awarded under the Company's annual incentive compensation plan for fiscal...

  • Page 46
    ... design of our executive compensation programs, and in so doing relies on a compensation consultant (who is independent of senior management) for advice, information and an objective point of view. During 2007, Tyco underwent a major change in its corporate structure. On June 29, 2007, the Company...

  • Page 47
    ... Senior Officer pay actions. Tally sheets identify the value of each pay element, including base salary, annual bonus, sign-on or other cash payments, long-term incentives, and benefit and perquisite payments. Options on the tally sheets are valued using the Black-Scholes option pricing model in...

  • Page 48
    ... of our revenue and earnings. The Compensation Committee and management concluded that a new peer group comprised of industrial companies and service-based companies (including companies outside of our industry) would better reflect the competitive landscape in which Tyco would be operating. The...

  • Page 49
    ...) provide internal pay equity across all of our businesses. The Career Band structure contemplates four primary elements of compensation: • Base salary; • Annual incentive compensation paid in the form of cash bonuses; • Long-term incentive compensation, which includes stock options and time...

  • Page 50
    ... (RSUs) and variable (stock options and performance shares)) • Align our executives' interests with our shareholders' interests. • Link a significant portion of our executives' total pay opportunity to share price. • Attract and retain talent. • Provide long-term accountability. • Provide...

  • Page 51
    assistance payments for New York State and City Income Tax on his Tyco-source compensation pursuant to his employment contract. All named executive officers participating in our executive life and long-term disability programs receive tax gross-up payments on the imputed income for the costs ...

  • Page 52
    ... by market data; and the base salaries paid to our other business unit presidents. Annual Incentive Compensation The annual incentive compensation, or performance bonus, for our executives is generally paid under the annual incentive plan, which is an element of the Company's 2004 Stock and...

  • Page 53
    ...consistent with the previously approved operating plan. For corporate employees, performance measures that excluded interest and tax expense of the Company replaced earnings per share and free cash flow before special items, as management and the Compensation Committee recognized that these expenses...

  • Page 54
    ... in Chief Executive Officer performance scorecards that the Board regularly reviews. Those goals included the successful completion of the Separation, plus objectives related to growth, operational excellence, management of our business portfolio, market position, talent and process upgrades, and...

  • Page 55
    ... based on market data and recommended by the Compensation Committee's consultant, (ii) the mix of options and full-value shares anticipated to be granted, (iii) the Company's stock price, (iv) the anticipated equity-related expense that the Company will record, (v) total annual share utilization and...

  • Page 56
    ... value of the pre-Separation options. The original vesting schedules did not change. Stock Options granted after September 29, 2006 For every one Tyco preSeparation option, optionholders received approximately 0.63 new Tyco options. Exercise prices were increased by a factor of approximately 1.59...

  • Page 57
    ...63 new Tyco RSUs. The original vesting date of September 30, 2008 did not change. Conversion of 2006 Performance Shares Tyco uses performance shares as a form of long-term compensation. Performance shares were first granted in November 2005 and were designed to encourage both sustained increases in...

  • Page 58
    ...compensation awards for the named executive officers, the Compensation Committee evaluated the equity grant practices of our peer group at that time (the pre-Separation peer group). The Compensation Committee also evaluated internally developed grant ranges prepared by our human resources department...

  • Page 59
    ... 2008 award included stock options and RSUs. But unlike the 2007 grant, the accelerated 2008 award included performance shares in the mix. The Compensation Committee decided that one-third of the value of the target award for each named executive officer would be delivered in stock options, one...

  • Page 60
    ...she has the option to continue making payments under the policy. In connection with the life insurance and long-term disability insurance programs, Tyco also provides tax gross-ups on the imputed income of our Senior Officers attributable to these plans. In addition, our Senior Officers can elect to...

  • Page 61
    ...the Tyco International (US) Inc. Change-in-Control Severance Plan for Certain U.S. Officers and Executives (the ''CIC Severance Plan'') generally govern the benefits that accrue upon termination. As described below, a ''double trigger'' is required under the CIC Severance Plan before benefits become...

  • Page 62
    ... Without a Change in Control Description Chief Executive Officer Other Named Executive Officers Governing document: Employment Contract. The Severance Plan. For equity awards, individual award agreements. Termination events triggering severance cash benefits and benefits continuation: Severance...

  • Page 63
    ... individual award agreements are consistent with the terms and conditions of the Severance Plan, which provides that, upon an involuntary termination without Cause: • Outstanding stock options continue to vest for 12 months. • The executive has 12 months to exercise vested stock options, subject...

  • Page 64
    ...-in-Control Description Chief Executive Officer Named Executive Officers Governing document: Employment Agreement. CIC Severance Plan. For equity awards, individual award agreements. Termination events triggering severance cash benefits and benefits continuation (requires a change-in-control and...

  • Page 65
    ... for the remainder of their term. Pension benefits: Pro-rated bonus in year of termination: Equity treatment: Yes. Substantially all of the individual equity awards for our named executive officers provide that, upon a change in control: • All options, restricted stock and RSUs vest in full...

  • Page 66
    ... Mr. Lytton, formerly an Executive Vice President and General Counsel, terminated his employment with the Company for ''good reason'' under his employment agreement as a result of the Separation. Pursuant to his employment agreement, Mr. Lytton received severance benefits. Mr. Robinson, formerly the...

  • Page 67
    ... corporate Senior Vice Presidents to ten times base salary for our Chief Executive Officer. Tyco shares that count towards meeting the stock ownership requirement include restricted stock, RSUs, deferred stock units, performance shares, shares acquired through our 401(k) plan or the Employee Stock...

  • Page 68
    ...management the Compensation Discussion and Analysis and, based on such review and discussions, recommended to the Board of Directors that the Compensation Discussion and Analysis be included in the Company's Annual Report on Form 10-K and this Proxy Statement. Submitted by the Compensation and Human...

  • Page 69
    ... officer's election. Change in Pension Non-Equity Value and Incentive Nonqualified All Plan Deferred Other Compensation Earnings Compensation ($)(4) ($)(5) ($)(6) (g) (h) (i) Name and Principal Position (a) Year (b) Salary ($)(1) (c) Bonus ($)(2) (d) Stock/Unit Awards ($)(3) (e) Option Awards...

  • Page 70
    ...plans is set forth in further detail under the Pension Benefits Table. All Other Compensation: The amount reported in column (i) for each named executive officer represents: cash perquisites; premiums paid by the Company for insurance for the benefit of the named executive officer and, in some cases...

  • Page 71
    ...of State taxes owed by them to New York or New Jersey for Tyco work performed in those States. Generally, the Company pays the increased tax cost (including a gross-up) that each executive owes as a result of working in those States rather than their principal work location. Amounts related to State...

  • Page 72
    ... Name (a) All Other Stock All Other Grant Estimated Possible Payouts Awards: Option Date Under Equity Incentive Plan Number of Awards: Exercise or Fair Value Awards(3) Shares Number of Base of Stock Target of Stock Securities Price of and (Midor Underlying Option Option (4) (4) (5) Threshold Point...

  • Page 73
    ... Grant Estimated Possible Payouts Awards: Option Date Under Equity Incentive Plan Number of Awards: Exercise or Fair Value Awards(3) Shares Number of Base of Stock Target of Stock Securities Price of and (Midor Underlying Option Option (4) (4) (5) Threshold Point) Maximum Units Options Awards Awards...

  • Page 74
    .... Specifically, the actual amount of stock options and RSUs that were originally granted were multiplied by approximately 0.63, which was determined in accordance with the Separation and Distribution Agreement by dividing the closing NYSE stock price of the Company's issued and outstanding shares on...

  • Page 75
    ... to exercise his or her stock option from the date of grant, unless forfeited earlier. Forfeiture provisions for the named executive officers are described under the heading ''Change in Control and Severance Benefits'' in the Compensation Discussion and Analysis. RSUs generally vest over a period of...

  • Page 76
    ... the closing price of $44.34 of the Company's common stock on the NYSE on September 28, 2007. Option Awards Stock Awards Equity Incentive Equity Incentive Plan Awards: Plan Awards: Market or Number of Payout Value of Unearned Unearned Shares, Units Shares, Units or Other Rights or Other Rights That...

  • Page 77
    ... reflect the number and market value of unvested shares of restricted stock and RSUs which had been earned as of September 28, 2007, but which remained subject to additional vesting requirements that depend upon the named executive officer's continued employment with the Company. Scheduled vesting...

  • Page 78
    ...each of the named executive officers holds stock options and/or restricted shares of Covidien and Tyco Electronics that are not included in the table above. As a result of the Separation: • Mr. Breen received 2,251,169 options to purchase Covidien common stock with exercise prices ranging from $12...

  • Page 79
    ... price of the Company's common stock on the vesting date of each award. Pension Benefits Table (2) The following table presents, for each named executive officer, the present value of the benefit he would receive at retirement under the specified pension plan, based on credited years of service...

  • Page 80
    ... the terms of Mr. Lytton's employment agreement, he is entitled to receive an annual supplemental retirement benefit payable at the later of age 62 and termination of employment in the form of a single life annuity equal to 6.25% multiplied by the number of completed and partial years of service...

  • Page 81
    ...in a single lump sum payment or in up to 15 annual installments. A participant may begin receiving distributions under each plan after a minimum of five years have elapsed from the plan year for which contributions are made, as long as the executive is still employed by Tyco, or upon the participant...

  • Page 82
    ... base salary and 3 times target bonus for fiscal year 2007. Payment includes a tax gross-up payment to the State of New York of $27,697. For each of the other named executive officers, severance would be paid under either the CIC Severance Plan (if the triggering event is a change in control) or...

  • Page 83
    ... represent the intrinsic value of all unvested equity awards and stock options of Tyco that would vest upon a triggering event. For Mr. Breen, the amounts under columns (b), (c) and (e) include a tax gross-up payment to the State of New York of $71,500, and the amount under column (g) includes...

  • Page 84
    ... this benefit. For Mr. Breen, termination benefits are governed by his employment agreement. For each of the other named executive officers, the CIC Severance Plan governs for change in control triggering events and the Severance Plan governs all other triggering events. In all cases, a ''Qualified...

  • Page 85
    ...to set their remuneration requires the affirmative vote of a majority of the votes cast by the holders of common shares represented at the Annual General Meeting in person or by proxy. The Audit Committee and the Board recommend that shareholders reappoint Deloitte & Touche LLP as Tyco's independent...

  • Page 86
    ... periodic reports to the Audit Committee with respect to pre-approved services, and ensuring compliance with the policy. Under the policy, the Audit Committee annually pre-approves the audit fee and terms of the engagement, as set forth in the engagement letter. This approval includes approval...

  • Page 87
    ... 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 of Tyco may solicit proxies by telephone or personal contact. Upon request...

  • Page 88
    ... year's meeting is December 11, 2008. United States Securities and Exchange Commission Reports Copies of our Annual Report on Form 10-K for the fiscal year ended September 28, 2007, as filed with the SEC (without exhibits), are available to shareholders free of charge on our website at www.tyco.com...

  • Page 89
    ... the Company as Treasury Shares shall be at the disposal of the Board, which may hold all or any of such shares, dispose of or transfer all or any of such shares for cash or other consideration, or cancel all or any of such shares. BYE-LAW 41: As proposed to be amended: 41. Officers Designated. The...

  • Page 90
    ... perform such duties as are set out under Bye-laws 42 to 51 inclusive. Highlighted Changes: 41. Officers Designated. The Board may entrust to and confer upon any officer any of its powers, authorities and discretions (with power to sub-delegate) on such terms and conditions with such restrictions as...

  • Page 91
    ... 08, Bermuda (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 $0.80 Name of each exchange on which registered New York Stock Exchange Securities...

  • Page 92
    ...94 Directors, Executive Officers and Corporate Governance ...Executive Compensation ...Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters ...Certain Relationships and Related Transactions, and Director Independence ...Principal Accountant Fees and Services...

  • Page 93
    ...the new segment structure. The Company reports financial and operating information in the following five segments, effective March 31, 2007: • ADT Worldwide designs, sells, installs, services and monitors electronic security systems to residential, commercial, industrial and governmental customers...

  • Page 94
    ... security services and products to many of the world's largest retailers, many of the leading banks in North America and to over five million households and over one and a half million business locations globally. • Favorable long-term growth opportunities. We operate businesses in a number of...

  • Page 95
    ... and Tyco Electronics, reduced our financial leverage, implemented world-class corporate governance standards and improved our financial performance. Our executive officers and the managers that support them have extensive experience in and knowledge of the markets in which we operate and have...

  • Page 96
    ... geographic financial data relating to our business. ADT Worldwide Our ADT Worldwide segment designs, sells, installs, services and monitors electronic security systems to residential, commercial, industrial and governmental customers around the world. We are one of the world's largest providers of...

  • Page 97
    ... panels identify the nature of the alarm and the areas where a sensor was triggered. Our electronic security systems include: access control systems for sensitive areas such as offices or banks; video surveillance systems, designed to deter theft and fraud and help protect employees and customers...

  • Page 98
    ... from changes and expansions in fire and life-safety codes and standards. We will continue to promote operational excellence by standardizing internal processes across business units and consolidating back office capabilities. Services and Products We design, sell, install and service fire alarm and...

  • Page 99
    ... basis of price, service and quality. Flow Control Our Flow Control segment designs, manufactures, sells and services valves, pipes, fittings, valve automation and heat tracing products for the water and wastewater markets, the oil, gas and other energy markets along with general process industries...

  • Page 100
    ... designs, manufactures and sells fire protection, security and life safety products, including fire suppression products, breathing apparatus, intrusion security, access control and video management systems. In addition, Safety Products manufactures products installed and serviced by ADT Worldwide...

  • Page 101
    ... ranging from burglar alarms to a full range of security systems including alarm control panels, keypads, sensors and central station receiving equipment used in security monitoring centers. We also manufacture a number of products for Fire Protection Services and ADT Worldwide for incorporation...

  • Page 102
    ...trade names, including Scott, Ansul, Grinnell, SoftwareHouse, American Dynamics, DSC and Bentel. Competition Competition for the manufacture and sale of our products is based on specialized product capacity, breadth of product line, price, training and support and delivery. The principal competitors...

  • Page 103
    ... their standard pipe offerings. Backlog See Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations for information relating to our backlog. Intellectual Property Patents and other proprietary rights are important to our business. We also rely upon trade secrets...

  • Page 104
    ...telephone companies in the United States are regulated by both the federal and state governments. We conduct our businesses through subsidiaries worldwide. Changes in legislation or government policies can affect our worldwide operations. For example, governmental regulation of fire safety codes can...

  • Page 105
    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 Reference Room at 100 F Street, N.E., ...

  • Page 106
    ...government or otherwise pay for the cost of cleanup of those sites and /or for natural resource damages. We have projects underway at a number of current and former manufacturing facilities to investigate and remediate environmental contamination resulting from past operations. These projects relate...

  • Page 107
    ...Although rates have decreased, if attrition rates were to trend upward, ADT's recurring 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...

  • Page 108
    ... reduce our revenues, increase our operating costs or otherwise adversely affect our financial condition, results of operations or cash flows. Our failure to satisfy International Trade Compliance regulations may adversely affect us. Tyco's global operations require importing and exporting goods and...

  • Page 109
    ... communicate signals, and wireline telephone companies are regulated by both the federal and state governments. Changes in laws or regulations could require us to change the way we operate, which could increase costs or otherwise disrupt operations. In addition, failure to comply with any applicable...

  • Page 110
    ... may increase. In addition, because we cannot always immediately adapt our cost structures to changing market conditions, our manufacturing capacity may at times exceed or fall short of our production requirements. Any of these problems could result in the loss of customers, provide an opportunity...

  • Page 111
    ... or product line. We have disclosed a material weakness in our internal control over financial reporting relating to our accounting for income taxes which could adversely affect our ability to report our financial condition, results of operations or cash flows accurately and on a timely basis. In...

  • Page 112
    ..., state departments of labor, the General Service Administration and others seeking the production of voluminous documents in connection with various investigations into our governance, management, operations, accounting and related controls. Certain current and former employees in ADT Worldwide...

  • Page 113
    ...in the prices of our publicly traded securities in 2002 and brought increased regulatory scrutiny upon us. Additional negative publicity related to former senior corporate management's actions could have a material adverse effect on our results of operations or cash flows and the market price of our...

  • Page 114
    ..., and a new Board of Directors was elected at our annual general meeting of shareholders in March 2003. We cannot provide assurance that the distractions related to matters arising from the actions of prior management will not adversely affect our financial condition, results of operations or cash...

  • Page 115
    ... and other corporate liabilities including associated costs and expenses. Many lawsuits are outstanding against Tyco, some of which relate to actions taken by its former senior corporate management. On May 14, 2007, we entered into a proposed settlement with respect to most of the class actions. We...

  • Page 116
    ... or subsidiaries of ours would incur significant U.S. federal income tax liabilities as a result of the application of Section 355(e) of the Code. Under the Tax Sharing Agreement, there are restrictions on our ability to take actions that could cause the distribution or certain internal transactions...

  • Page 117
    ... financial condition, results of operations or cash flows. Legislation Relating to Government Contracts We continue to assess the potential impact of various U.S. federal and state legislative proposals that would deny government contracts to U.S. companies that move their corporate location abroad...

  • Page 118
    ... facilities house manufacturing, distribution and warehousing operations, as well as sales and marketing, engineering and administrative offices. ADT Worldwide operates through a network of offices located in North America, Central America, South America, Europe, the Middle East, the Asia-Pacific...

  • Page 119
    ..., we entered into a liability sharing agreement regarding certain class actions that were pending against Tyco prior to the Separation. Subject to the terms and conditions of the Separation and Distribution Agreement, we will manage and control all the legal matters related to assumed contingent...

  • Page 120
    ... not release claims arising under the Employee Retirement Income Security Act of 1974, 29 U.S.C. Sec. 1001, et seq. (''ERISA''), which are not common to all Class Members, including any claims asserted in Overby, et al. v. Tyco International Ltd., Civil Action No. 02-MD-1357-PB. Under the terms of...

  • Page 121
    ... class action settlement and any judgments resulting from opt-out claims. Additionally, under the Separation and Distribution Agreement, the companies will share in the liability and related escrow accounts, with Tyco assuming 27%, Covidien 42% and Tyco Electronics 31% of the settlement amount. Tyco...

  • Page 122
    ...the class certification order. On September 13, 2007, the United States Court of Appeals for the First Circuit denied Tyco's petition. As previously reported in our periodic filings, on November 27, 2002 the State of New Jersey, on behalf of several state pension funds, filed a complaint, New Jersey...

  • Page 123
    .... The Circuit Court granted Tyco's motion to dismiss Hromyak. The Florida District Court of Appeal affirmed the dismissal. These cases were included in the proposed settlement of the Securities Class Action, which is contingent upon these cases being dismissed. As previously reported in our periodic...

  • Page 124
    ...included in the proposed settlement of the Securities Class Action, which is contingent upon the case being dismissed. As previously reported in our periodic filings, on January 20, 2004, a complaint was filed in the United States District Court for the Southern District of New York, Ballard v. Tyco...

  • Page 125
    ...previously reported in our periodic filings, the Judicial Panel on Multidistrict Litigation was notified that Hall v. Kozlowski, et al. an action relating to plaintiff's employment, 401(k) and pension plans and ownership of Tyco stock, may be an action that should be transferred to the United States...

  • Page 126
    ... of the State of New York, Appellate Division, First Department, heard oral arguments in this action and on November 15, 2007, the Court denied the plaintiff's appeal. ERISA Litigation As previously reported in our periodic filings, Tyco and certain of our current and former employees, officers and...

  • Page 127
    ... Management Tyco International Ltd. v. L. Dennis 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...

  • Page 128
    ...a result of the former Chief Financial Officer and director's conduct, and all remuneration, including restricted and unrestricted shares and options, obtained by Mr. Swartz during the course of this conduct. The Judicial Panel on Multidistrict Litigation transferred this action to the United States...

  • Page 129
    ...requests from the SEC, the U.S. Department of Labor, state departments of labor, the General Service Administration and others seeking the production of voluminous documents in connection with various investigations into our governance, management, operations, accounting and related controls. We are...

  • Page 130
    ... of Criminal Justice Office of the Attorney General a subpoena to produce documents concerning, among other things, former employees, the use of certain chemicals, and the filing of reports under state and federal environmental reporting laws at the same New Jersey facility sold by Tyco in 2000. The...

  • Page 131
    ... on the Company's effective tax rate in future reporting periods. Additionally, the IRS proposed civil fraud penalties against a prior subsidiary that was distributed to Tyco Electronics arising from alleged actions of former executives in connection with certain intercompany transfers of stock of...

  • Page 132
    ... the indentures dated as of June 9, 1998 and November 12, 2003, of Tyco International Group S.A. (''TIGSA''), a wholly-owned subsidiary of Tyco, commenced an action against TIGSA and Tyco in the United States District Court for the Southern District of New York. BONY served an amended complaint on...

  • Page 133
    ... the 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...

  • Page 134
    ... with contract against ADT and Wallace Computer Services, Inc., a party unrelated to Tyco. The litigation was based on allegedly unpaid commissions under a franchise agreement. The lawsuit also alleges that Sensormatic improperly authorized third parties (including ADT and Wallace) to sell in...

  • Page 135
    ... 29, 2007, the Company, as approved by its Board of Directors, effected a reverse stock split of Tyco's common shares, at a split ratio of one for four. Shareholder approval for the reverse stock split was obtained at the March 8, 2007 Special General Meeting of Shareholders. Market price range was...

  • Page 136
    ... Graph Set forth below is a graph comparing the cumulative total shareholder return on Tyco's common shares against the cumulative return on the S&P 500 Index and the Dow Jones Industrial Diversified Index, assuming investment of $100 on September 30, 2002, including the reinvestment of dividends...

  • Page 137
    ... 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 138
    ... by the Compensation and Human Resources Committee. The Senior Vice President of Human Resources, among other things, determines when to grant options and sets the option price in accordance with the SAYE Plan's rules. Issuer Purchases of Equity Securities Total Number of Shares Purchased as...

  • Page 139
    ...for the year ended September 28, 2007 includes a class action settlement charge, net of $2.862 billion, $105 million of separation costs, a $46 million goodwill impairment charge related to the reorganization to a new management and segment reporting structure, net restructuring and asset impairment...

  • Page 140
    ...the first quarter of 2005 and $0.40 per common share thereafter. Prior to 2005, Tyco paid a quarterly cash dividend of $0.05 per common share for all periods presented. The decrease in total assets, long-term debt and shareholders' equity in 2007 is primarily related to the spin-offs of Covidien and...

  • Page 141
    ...access control and video management systems. In addition, Safety Products manufactures products installed and serviced by ADT Worldwide and Fire Protection Services. • Electrical and Metal Products designs, manufactures and sells steel tubing and pipe products, as well as cable products, including...

  • Page 142
    ... the distribution date, the Company, as approved by its Board of Directors, effected a reverse stock split of Tyco's common shares, at a split ratio of one for four. Shareholder approval for the reverse stock split was obtained at the March 8, 2007 Special General Meeting of Shareholders. Share and...

  • Page 143
    ... which $7 million was recorded in cost of sales, and utilized cash of $70 million related to this program. We believe this restructuring program will strengthen our competitive position over the long term. Class Action Settlement On May 14, 2007, Tyco entered into a Memorandum of Understanding with...

  • Page 144
    ... for the full amount of the class action settlement and any judgments resulting from opt-out claims. Additionally, under the Separation and Distribution Agreement, the companies share in the liability and related escrow accounts, with Tyco assuming 27%, Covidien 42% and Tyco Electronics 31% of the...

  • Page 145
    ... Control as a result of volume growth from strength in most industrial end markets. In addition, revenue growth was favorably impacted by increased selling prices of armored cable products due to higher costs of copper within Electrical and Metal Products during 2006. Foreign currency exchange rates...

  • Page 146
    ... maintenance, including the monitoring of burglar alarms, fire alarms and other life safety systems as well as services related to retailer anti-theft systems. The 2.8% revenue growth in North America resulted largely from an increase in commercial installations, primarily in the retailer market, as...

  • Page 147
    ... reorganization of our management and segment reporting structure, as well as increased investment in selling and marketing in Americas and Asia. In addition, results for 2007 included net restructuring and asset impairment charges of $83 million, which were primarily related to actions to improve...

  • Page 148
    ...a 9.9% increase in revenue from product sales. Revenue from product sales includes sales and installation of fire protection and other systems. Service revenue comprises inspection, maintenance, service and monitoring of fire detection and suppression systems. This increase was largely the result of...

  • Page 149
    ... favorable growth as a result of new product introductions and new market expansions. These increases were partially offset by continued softness in the life safety business in North America due to delays of federal assistance provided to fire departments. Operating income increased $84 million to...

  • Page 150
    ... revenue in 2006 was largely driven by increased selling prices of armored cable products as a result of higher costs of copper and higher volumes of core steel products due to growth in the non-residential construction markets in North America. Favorable changes in foreign currency exchange rates...

  • Page 151
    ...run rate of $500 million by mid-2008. Corporate expense in 2006 was $219 million lower than 2005. Corporate expense for 2006 included $72 million of income related to the extinguishment of certain payment obligations under a split dollar life insurance policy and rabbi trust pursuant to a settlement...

  • Page 152
    ...as a result of the class action settlement charge, net of $2.862 billion and the loss on early extinguishment of debt of $259 million for which no tax benefit is available. Additionally, taxes for 2007 were negatively impacted by tax costs related to the Separation. Our effective income tax rate was...

  • Page 153
    ...as a result of any failure of the distribution of all of the shares of Covidien or Tyco Electronics to qualify as a tax-free distribution for U.S. federal income tax purposes within the meaning of Section 355 of the Code or certain internal transactions undertaken in anticipation of the spin-offs to...

  • Page 154
    ... on its financial condition, results of operations or cash flows. During the third quarter of 2007, the IRS concluded its field examination of certain of Tyco's U.S. federal income tax returns for the years 1997 though 2000 and issued anticipated Revenue Agents' Reports (''RARs'') which reflect...

  • Page 155
    ... on the Company's effective tax rate in future reporting periods. Additionally, the IRS proposed civil fraud penalties against a prior subsidiary that was distributed to Tyco Electronics arising from alleged actions of former executives in connection with certain intercompany transfers of stock of...

  • Page 156
    ... was primarily based on the terms and conditions included or expected to be included in the sales agreements. Acquisitions During 2007, cash paid for acquisitions included in continuing operations, primarily within ADT Worldwide, Safety Products and Flow Control, totaled $31 million. Cash paid for...

  • Page 157
    ...Company changed the measurement date for its pension and postretirement benefit 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...

  • Page 158
    ...include installed property, plant and equipment for which Tyco retains ownership and deferred costs directly related to the customer acquisition and system installation. Subscriber system assets and any deferred revenue resulting from the customer acquisition are accounted for over the expected life...

  • Page 159
    ... rates for customers in our ADT Worldwide business were 12.3%, 14.2% and 15.0% on a trailing 12-month basis for 2007, 2006 and 2005, respectively. Revenue Recognition-Contract sales for the installation of fire protection systems, large security intruder systems and other construction-related...

  • Page 160
    ... no goodwill impairments related to continuing operations during 2006 and 2005. Long-Lived Assets-Assets held and used by the Company, including property, plant and equipment and amortizable intangible assets, are reviewed for impairment whenever events or changes in business circumstances indicate...

  • Page 161
    ......Class action settlement liability ...Net change in working capital ...Interest income ...Interest expense ...Income tax expense ...Net cash provided by operating activities ...Other cash flow items: Capital expenditures, net(3) ...Decrease in sale of accounts receivable ...Acquisition of customer...

  • Page 162
    ... increase in accounts receivable, and $244 million of changes in income taxes, net, which includes a payment of legacy tax liabilities. Additionally, working capital includes the collection of $38 million related to restitution owed by Mark H. Swartz, former Chief Financial Officer and Director...

  • Page 163
    ... and payment of future dividends to holders of our common shares, however, falls within the discretion of our Board of Directors and will depend upon many factors, including the statutory requirements of Bermuda law, our financial condition and results of operations, the capital requirements of...

  • Page 164
    ... facilities to fund our debt tender offers, repay our existing bank credit facilities and to finance the class action settlement. Of this amount, approximately $4.3 billion and $3.6 billion was assigned to Covidien and Tyco Electronics, respectively. We initially guaranteed the new unsecured bridge...

  • Page 165
    ...Litigation. The following table details our long-term debt ratings at September 28, 2007 and September 29, 2006: 2007 2006 Moody's ...Standard & Poor's ...Fitch ... Baa1 BBB BBB Baa3 BBB+ BBB+ The security ratings set forth above are not a recommendation to buy, sell or hold securities and may be...

  • Page 166
    ... 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. In connection with the Separation, the Company entered into a liability sharing agreement regarding certain class actions that...

  • Page 167
    terms and conditions of the Separation and Distribution Agreement, the Company will manage and control all the legal matters related to assumed contingent liabilities as described in the Separation and Distribution Agreement, including the defense or settlement thereof, subject to certain ...

  • Page 168
    ...effect on the Company's financial position, results of operations or cash flows. Income Taxes Tyco and its subsidiaries' income tax returns periodically are examined by various tax authorities. In connection with these examinations, tax authorities, including the IRS, have raised issues and proposed...

  • Page 169
    ... 133 101 3 $8,178 Within ADT Worldwide, backlog increased primarily as a result of strong bookings across all regions. Backlog for ADT Worldwide also includes recurring revenue-in-force, which represents 12 months' fees for monitoring and maintenance services under contract in the security business...

  • Page 170
    ... of the Tax Sharing Agreement. In addition, Tyco historically provided support in the form of financial and/or performance guarantees to various Covidien and Tyco Electronics operating entities. In connection with the Separation, the Company worked with the guarantee counterparties to cancel or...

  • Page 171
    .... 158 requires that employers recognize the funded status of defined benefit pension and other postretirement benefit plans as a net asset or liability on the balance sheet and recognize as a component of other comprehensive income, net of tax, the gains or losses and prior service costs or credits...

  • Page 172
    ... 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 including its...

  • Page 173
    ...potential 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. Item...

  • Page 174
    ... foreign operations. In December 2006, due to required changes to the legal entity structure to facilitate the Separation, the Company determined that it will no longer consider certain intercompany foreign currency transactions to be long-term investments. As a result, the related foreign currency...

  • Page 175
    ... our Chief Executive Officer and our Chief Financial Officer concluded that, as of September 28, 2007, our disclosure controls and procedures were not effective because of a material weakness in our internal controls over financial reporting, relating to accounting for income taxes, which we view as...

  • Page 176
    ... because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Management assessed the effectiveness of our internal control over financial reporting as of September 28, 2007. In making this assessment, management used the criteria set forth by...

  • Page 177
    ...continue to focus on our internal controls over accounting for income taxes, and will take further steps to those mentioned earlier to strengthen controls, including the following planned actions: • Further enhancements to policies and procedures relating to tax account reconciliation and analysis...

  • Page 178
    ... Officer and Chief Accounting Officer, as well as all other employees. 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. Our Guide to Ethical Conduct is posted on our website at www.tyco...

  • Page 179
    ...: Exhibit Number Exhibit 2.1 Stock and Asset Purchase Agreement dated December 20, 2005 among Tyco Group S.A.R.L., TP&A Acquisition Corporation and for a limited purpose Tyco International Group S.A. (Incorporated by reference to Exhibit 2.1 to the Registrant's Quarterly Report on Form 10-Q for...

  • Page 180
    ... Ownership Plan for Key Employees (Incorporated by reference to Exhibit 10.1 to the Registrant's Registration Statement on Form S-8 (No. 333-93261) filed on December 21, 1999).(1) Tyco International (US) Inc. Supplemental Executive Retirement Plan, amended and restated as of October 1, 2000, dated...

  • Page 181
    ...).(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 182
    ..., 2007) (Filed herewith).(1) Terms and Conditions of Option Award, Restricted Stock Award, and Restricted Unit Award and Form of Director Deferred Stock Unit Award Letter under the 2004 Stock and Incentive Plan (Incorporated by reference to Exhibit 10.27 to the Registrant's Annual Report on Form 10...

  • Page 183
    ... contract or compensatory 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...

  • Page 184
    ... report to be signed on its behalf by the undersigned, thereunto duly authorized. TYCO INTERNATIONAL LTD. By: /s/ CHRISTOPHER J. COUGHLIN Christopher J. Coughlin Executive Vice President and Chief Financial Officer (Principal Financial Officer) Date: November 27, 2007 Pursuant to the requirements...

  • Page 185
    ...* Sandra S. Wijnberg Director * Jerome B. York * Director Judith A. Reinsdorf, by signing her 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 186
    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 Operations ...Consolidated Balance Sheets ...Consolidated Statements of Shareholders' ...

  • Page 187
    ...We believe that a strong control environment is a dynamic process. Therefore, we intend to continue to devote the necessary resources to maintain and improve our internal controls and corporate governance. Our Audit Committee meets regularly and separately with management, Deloitte & Touche LLP, our...

  • Page 188
    ... 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 189
    ... been identified and included in management's assessment: The Company did not maintain effective internal controls over accounting for income taxes. Control deficiencies existed related to tax effecting consolidating entries, analysis and reconciliation of taxes receivable and taxes payable in non...

  • Page 190
    ... and financial statement schedule and included an explanatory paragraph noting that i) the Company changed the depreciation method and estimated useful life used to account for pooled subscriber system assets and related deferred revenue from the straight-line method with lives ranging from...

  • Page 191
    ... (in millions, except per share data) 2007 2006 2005 Revenue from product sales ...Service revenue ...Net revenue ...Cost of product sales ...Cost of services ...Selling, general and administrative expenses ...Class action settlement, net ...Separation costs ...Goodwill impairment ...Restructuring...

  • Page 192
    ... maturities of long-term debt ...Accounts payable ...Class action settlement liability ...Accrued and other current liabilities ...Deferred revenue ...Liabilities of discontinued operations ...Total current liabilities ...Long-term debt ...Deferred revenue ...Other liabilities ...Total Liabilities...

  • Page 193
    ... pension liability, net of income taxes ... Total comprehensive income ...Dividends declared ...Share options exercised, including tax benefit of $23 ...Repurchase of common shares by subsidiary ...Compensation expense ...Exchange of convertible debt ...Distribution of Covidien and Tyco Electronics...

  • Page 194
    ... debt . Repayment of short-term debt ...Proceeds from issuance of long-term debt . . Repayment of long-term debt, including debt Proceeds from exercise of share options ...Dividends paid ...Repurchase of common shares by subsidiary Transfer from discontinued operations ...Other ...tenders ... Net...

  • Page 195
    ... the distribution date, the Company, as approved by its Board of Directors, effected a reverse stock split of Tyco's common shares, at a split ratio of one for four. Shareholder approval for the reverse stock split was obtained at the March 8, 2007 Special General Meeting of Shareholders. Share and...

  • Page 196
    .... This is generally when the products reach the free-on-board shipping point, the sales price is fixed and determinable and collection is reasonably assured. Provisions for certain rebates, sales incentives, trade promotions, product returns and discounts to customers are accounted for as reductions...

  • Page 197
    TYCO INTERNATIONAL LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Basis of Presentation and Summary of Significant Accounting Policies (Continued) estimates as contracts progress have the effect of increasing or decreasing profits each period. Provisions for anticipated losses are made in the...

  • Page 198
    ...include installed property, plant and equipment for which Tyco retains ownership and deferred costs directly related to the customer acquisition and system installation. Subscriber system assets and any deferred revenue resulting from the customer acquisition are accounted for over the expected life...

  • Page 199
    .... Acquired contracts and related customer relationships are recorded at their contractually determined purchase price. 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...

  • Page 200
    .... The effect of the change in estimated useful life for dealer intangibles decreased loss from continuing operations and net loss by $6 million each and increased basic and diluted earnings per share by $0.01 for 2007. Other contracts and related customer relationships, as well as intellectual...

  • Page 201
    ... and related expenses is dependent on claims experience. For most of these liabilities, claims incurred but not yet reported are estimated by utilizing actuarial valuations based upon historical claims experience. Certain insurable liabilities are discounted using a risk-free rate of return when...

  • Page 202
    ... Accounting Standards Board (''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...

  • Page 203
    TYCO INTERNATIONAL LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Basis of Presentation and Summary of Significant Accounting Policies (Continued) date, management does not expect the adoption to have a material effect on the results of its operations, financial position or cash flows. 2. ...

  • Page 204
    ... charges in continuing operations in connection with the write-down to fair value, less cost to sell, of certain businesses. The fair value used for the impairment assessments was primarily based on the terms and conditions included or expected to be included in the sales agreements. 112 2007...

  • Page 205
    ... strengthen the Company's competitive position in the future. To date, many of the actions initiated relate to improving field efficiencies and consolidating certain administrative functions in the European operations of ADT Worldwide and Fire Protection Services. In addition, Corporate consolidated...

  • Page 206
    ...Activity in the Company's 2007 restructuring reserves related to actions initiated in 2007 is summarized as follows ($ in millions): Employee Severance and Benefits Facility Exit Charges Total Charges ...Reversals ...Utilization ...Reclass/transfers ...Currency translation ...Balance at September...

  • Page 207
    ... related to certain actions initiated prior to 2005. The total amount of these reserves are $21 million and $30 million at September 28, 2007 and September 29, 2006, respectively. These balances primarily include facility exit costs for long-term non-cancelable lease obligations within the ADT...

  • Page 208
    ... 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. These acquisitions did not have a material effect on the Company's financial position, results of operations or...

  • Page 209
    ... Executive Officer, and Mr. Mark H. Swartz, our former Chief Financial Officer and Director. The restitution award is comprised of $109 million of previously expensed compensation made to the Defendants and reported as other expense, net in prior years and $25 million related to a loan receivable...

  • Page 210
    ...taxes at the statutory rate and the Company's provision for income taxes on continuing operations for the years ended September 28, 2007, September 29, 2006, and September 30, 2005 is as follows ($ in millions): 2007 2006 2005 Notional U.S. federal income tax (benefit) expense at the statutory rate...

  • Page 211
    .... The Company believes that it will generate sufficient future taxable income to realize the tax benefits related to the remaining net deferred tax assets. The valuation allowance was calculated in accordance with the provisions of SFAS No. 109, ''Accounting for Income Taxes,'' which requires that...

  • Page 212
    ... the basis differences related to investments in subsidiaries. See ''Income Taxes'' in Note 16 for information related to the Tax Sharing Agreement with Covidien and Tyco Electronics. 7. Cumulative Effect of Accounting Change During 2006, the Company adopted FIN No. 47, ''Accounting for Conditional...

  • Page 213
    ... 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. 8. Earnings Per Share As discussed in Note 1, the Company effected a reverse stock split of Tyco's common shares, at a split...

  • Page 214
    ... and New Zealand Security Services business, part of the ADT Worldwide segment. As a result, the Company recognized a goodwill impairment of $46 million in the third quarter of 2007. In determining fair value, management relies on a number of factors including operating results, business plans...

  • Page 215
    ...) The changes in the carrying amount of goodwill from the reallocation in the third quarter of 2007 to September 28, 2007 was as follows ($ in millions): Fire Electrical ADT Protection Flow Safety and Metal Corporate Worldwide Services Control Products Products and Other Total Balance, as...

  • Page 216
    ...of 2002, the Board of Directors and new senior management adopted a policy under which no new loans are allowed to be granted to any officers of the Company and existing loans are not allowed to be extended or modified. During 2007, the Company engaged in commercial transactions in the normal course...

  • Page 217
    ...death benefit. On September 27, 2006, the Company and Mr. Kozlowski entered into a general release agreement that terminated Mr. Kozlowski's shared ownership agreement of the split dollar life insurance policy and the rabbi trust. As such, the Company has no continuing obligation to make any payment...

  • Page 218
    .... The felony charge accused Mr. Walsh of intentionally concealing information concerning the payment from Tyco's directors and shareholders while 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...

  • Page 219
    ...facilities to fund its debt tender offers, repay its existing bank credit facilities and to finance the class action settlement. Of this amount, approximately $4.3 billion and $3.6 billion was assigned to Covidien and Tyco Electronics, respectively. Tyco initially guaranteed the new unsecured bridge...

  • Page 220
    ... agreements contain customary terms and conditions, and financial covenants that limit the ratio of the Company's debt to its earnings before interest, taxes, depreciation, and amortization and that limit its ability to incur subsidiary debt or grant liens on its property. The Company's indentures...

  • Page 221
    ..., excluding the impact of interest rate swaps. The weighted-average interest rate on short-term debt was 5.5% at September 28, 2007. The impact of the Company's interest rate swap agreements on reported interest expense was a net increase of $10 million for 2006 and a net decrease of $40 million for...

  • Page 222
    ... of the Tax Sharing Agreement. In addition, Tyco historically provided support in the form of financial and/or performance guarantees to various Covidien and Tyco Electronics operating entities. In connection with the Separation, the Company worked with the guarantee counterparties to cancel or...

  • Page 223
    ... factors such as changes in material and labor costs, and the actual number of sprinkler heads replaced. Actual results could differ from this estimate. Settlements during 2007 include cash expenditures of $38 million related to the VRP. 15. Financial Instruments The Company's financial instruments...

  • Page 224
    TYCO INTERNATIONAL LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 15. Financial Instruments (Continued) As part of managing the exposure to changes in foreign currency exchange rates, the Company utilizes forward and option contracts with financial institutions acting as principal counterparties. ...

  • Page 225
    ... as an adjustment to cost of sales when the underlying transaction impacts earnings. Tyco uses various options, swaps, and forwards not designated as hedging instruments, to manage foreign currency exposures on accounts and notes receivable, accounts payable, intercompany loans and forecasted...

  • Page 226
    ...entered into a liability sharing agreement regarding certain class actions that were pending against Tyco prior to the Separation. Subject to the terms and conditions of the Separation and Distribution Agreement, the Company will manage and control all the legal matters related to assumed contingent...

  • Page 227
    ... Class Action Settlement As a result of actions taken by certain of the Company's former senior corporate management, Tyco, some members of the Company's former senior corporate management, including former members of its Board of Directors and former General Counsel are named defendants in a number...

  • Page 228
    ... Company's governance, management, operations, accounting and related controls. The Department of Labor is investigating Tyco and the administrators of certain of its benefit plans. The Company cannot predict when these investigations will be completed, nor can the Company predict what the results...

  • Page 229
    ... to the Separation and Distribution Agreement, Covidien has assumed all liabilities for pending cases filed against Covidien's subsidiaries. Consistent with the national trend of increased asbestos-related litigation, the Company has observed an increase in the number of these lawsuits in the past...

  • Page 230
    ... Company's financial position, results of operations or cash flows. Income Taxes In connection with the spin-offs of Covidien and Tyco Electronics from Tyco, Tyco entered into a Tax Sharing Agreement that generally governs Covidien's, Tyco Electronics' and Tyco's respective rights, responsibilities...

  • Page 231
    ... share of Tyco's, Covidien's and Tyco Electronics' tax liabilities. The Company and its subsidiaries' income tax returns periodically are examined by various tax authorities. In connection with these examinations, tax authorities, including the Internal Revenue Service (''IRS''), have raised issues...

  • Page 232
    ...payments were made by Tyco subsidiaries in recent years. As previously reported, we have been informed that two subsidiaries in our Flow Control business in Italy have been named in a request for criminal charges filed by the Milan public prosecutor's office. Tyco has reported to the U.S. Department...

  • Page 233
    ... the indentures dated as of June 9, 1998 and November 12, 2003, of Tyco International Group S.A. (''TIGSA''), a wholly-owned subsidiary of Tyco, commenced an action against TIGSA and Tyco in the United States District Court for the Southern District of New York. BONY served an amended complaint on...

  • Page 234
    ... a multi-employer pension plan such as the Fund, the employer is liable for withdrawal liability equal to its proportionate share of the plan's unfunded vested benefits. The alleged withdrawal results from a 1994 labor dispute between Grinnell Fire Protection Systems, SimplexGrinnell's predecessor...

  • Page 235
    ... granted Earth Tech's motion for partial summary judgment, ordering that application of Arizona's Prompt Payment Act was appropriate and that any material inconsistencies in the contract be resolved in favor of the Act's requirements. On October 19, 2007, Earth Tech filed a second motion related...

  • Page 236
    ... financial position, results of operations or cash flows. 17. Retirement Plans In September 2006, the FASB issued SFAS No. 158. SFAS No. 158 requires the recognition of the funded status of defined benefit pension and other postretirement benefit plans on the Company's Consolidated Balance Sheets...

  • Page 237
    ... compensation. The following tables exclude amounts related to discontinued operations for all periods presented. In connection with the Separation, the Company legally separated certain pension plans that included participants of Tyco Healthcare, Tyco Electronics and other subsidiaries. As a result...

  • Page 238
    ... plan assets: Fair value of plan assets at beginning of year ...Actual return on plan assets ...Employer contributions ...Employee contributions ...Transfer ...Plan settlements, curtailments and special termination benefits Benefits and administrative expenses paid ...Currency translation ...Funded...

  • Page 239
    ... income (before taxes) consist of: Transition obligation ...Prior service cost (credit) ...Net actuarial loss ...Total amount recognized ...Weighted-average assumptions used to determine pension benefit obligations at year end: Discount rate ...Rate of compensation increase ... $ (18) $ (338...

  • Page 240
    ... 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 contributions in accordance with the laws and customs of the various countries in which it operates as...

  • Page 241
    TYCO INTERNATIONAL LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 17. Retirement Plans (Continued) The Company also participates in a number of multi-employer defined benefit plans on behalf of certain employees. Pension expense related to multi-employer plans was $3 million, $3 million and $12 ...

  • Page 242
    TYCO INTERNATIONAL LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 17. Retirement Plans (Continued) Net periodic postretirement benefit cost for 2007, 2006 and 2005 is as follows ($ in millions): 2007 2006 2005 Service cost ...Interest cost ...Amortization of prior service Amortization of net ...

  • Page 243
    ... end: Discount rate ...$ (7) (64) $(71) $ (3) (8) $(11) $(87) $(87) 6.0% 5.7% The Company expects to make contributions to its postretirement benefit plans of $7 million in 2008. Benefit payments, including those amounts to be paid out of corporate assets and reflecting future expected service as...

  • Page 244
    ... 30, 2005. 18. Shareholders' Equity Preference Shares-Tyco has authorized 31,250,000 preference shares, par value of $4 per share, none of which were issued and outstanding at September 28, 2007 and September 29, 2006. Rights as to dividends, return of capital, redemption, conversion, voting...

  • Page 245
    ... Plans (Continued) prices for the Tyco awards were adjusted. Generally, employee share options converted into share options of the employer with the exception of corporate employees whose awards converted into share options of all three companies. The revisions made to the share options as a result...

  • Page 246
    ...reverse stock split, would have been as follows ($ in millions, except per share data): 2005 Net income, as reported ...Add: Employee compensation expense for share options included in reported net income, net of income taxes ...Less: Total employee compensation expense for share options determined...

  • Page 247
    ...-date fair value of each option grant is estimated using the Black-Scholes option pricing model. The fair value is then amortized on a straight-line basis over the requisite service periods of the awards, which is generally the vesting period. Use of a valuation model requires management to make...

  • Page 248
    ... contractual term of the option and expected employee exercise and post-vesting employment termination behavior. The risk-free interest rate is based on U.S. Treasury zero-coupon issues with a remaining term equal to the expected life assumed at the date of grant. The compensation expense recognized...

  • Page 249
    ... purchased on the open market by a designated broker. Under the SAYE Plan, eligible employees in the United Kingdom 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. Options under the SAYE Plan are generally exercisable after...

  • Page 250
    ...shares to restricted share awards and performance shares of Covidien and Tyco Electronics, the Separation and the one for four reverse stock split: Weighted-Average Grant-Date Fair Value Non-vested Restricted Share Awards Shares Non-vested at September 29, 2006 ...Granted ...Vested ...Distributed...

  • Page 251
    ... shares and do not have the right to receive cash dividends. However, they have the right to receive dividend equivalents. Conditions of vesting are determined at the time of grant. Under the 2004 Plan, the majority of Tyco's DSU grants vest in equal annual installments over three years. The Company...

  • Page 252
    ...new segment structure. The Company reports financial and operating information in the following five segments: • ADT Worldwide designs, sells, installs, services and monitors electronic security systems to residential, commercial, industrial and governmental customers. • Fire Protection Services...

  • Page 253
    ...access control and video management systems. In addition, Safety Products manufactures products installed and serviced by ADT Worldwide and Fire Protection Services. • Electrical and Metal Products designs, manufactures and sells steel tubing and pipe products, as well as cable products, including...

  • Page 254
    ... millions): 2007 2006 2005 Total assets: ADT Worldwide ...Fire Protection Services ...Flow Control ...Safety Products ...Electrical and Metal Products ...Corporate and Other(1) ...Assets of discontinued operations ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... $12,287 2,801 4,422...

  • Page 255
    ...30, 2005 are as follows ($ in millions): 2007 2006 2005 Long-lived assets : United States ...Other Americas ...Europe, Middle East and Africa Asia-Pacific ...Corporate and Other ... (1) ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... $2,693 337 611 532 65 $4,238 $2,621...

  • Page 256
    ...Property, plant and equipment, net ...Deferred tax asset-non-current ...Other non-current assets ...Other assets ...Accrued payroll and payroll related costs Deferred income tax liability-current ...Income taxes payable-current ...Other ... Accrued and other current liabilities ...Long-term pension...

  • Page 257
    ... excludes $356 million of revenue related to discontinued operations. Income from continuing operations includes net restructuring and asset impairment charges of $60 million, separation costs of $20 million, a $13 million insurance recovery related to the class action settlement, and $10 million of...

  • Page 258
    ... excludes $6,246 million of revenue related to discontinued operations. Income from continuing operations includes income from settlement with a former executive of $72 million, $48 million of income resulting from a reduction in our estimated workers' compensation liabilities primarily due to...

  • Page 259
    ...millions) Tyco International Ltd. Tyco International Finance S.A. Other Subsidiaries Consolidating Adjustments Total Net revenue ...Cost of product sales ...Cost of services ...Selling, general and administrative expenses ...Class action settlement, net ...Separation costs ...Goodwill impairment...

  • Page 260
    ... 29, 2006 ($ 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 ...Separation costs ...Restructuring and asset impairment...

  • Page 261
    ... Year Ended September 30, 2005 ($ 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 asset impairment...

  • Page 262
    ... of long-term debt ...Accounts payable ...Class action settlement liability ...Accrued and other current liabilities ...Deferred revenue ...Intercompany payables ...Liabilities of discontinued operations ...Total current liabilities . Long-term debt ...Intercompany loans payable . Deferred revenue...

  • Page 263
    ...current maturities of long-term debt ...Accounts payable ...Accrued and other current liabilities ...Deferred revenue ...Intercompany payables ...Liabilities of discontinued operations ...Total current liabilities . Long-term debt ...Intercompany loans payable . Deferred revenue ...Other liabilities...

  • Page 264
    ... of customer accounts (ADT dealer program) ...Acquisition of businesses, net of cash acquired . Divestiture of businesses, net of cash retained . . Class action settlement escrow ...Liquidation of rabbi trust investments ...Decrease in investments ...Decrease (increase) in investment in subsidiaries...

  • Page 265
    ... operating activities ...Cash Flows From Investing Activities: Capital expenditures ...Proceeds from disposal of assets ...Acquisition of customer accounts (ADT dealer program) ...Acquisition of businesses, net of cash acquired Divestiture of businesses, net of cash retained Decrease (increase...

  • Page 266
    ...options ...Dividends paid ...Repurchase of common shares by subsidiary . . Net intercompany loan repayments ...Transfer from discontinued operations ...Other ...Net cash (used in) provided by financing activities ...Net cash used in discontinued financing activities ...Effect of currency translation...

  • Page 267
    TYCO INTERNATIONAL LTD. SCHEDULE II-VALUATION AND QUALIFYING ACCOUNTS (in millions) Additions Charged to Income Description Balance at Beginning of Year Divestitures and Other Deductions Balance at End of Year Accounts Receivable: Year Ended September 30, 2005 ...Year Ended September 29, 2006 ...

  • Page 268
    2007 Financials

  • Page 269
    2007 Financials

  • Page 270
    2007 Financials

  • Page 271
    ... they represent long-term commitments. Cash paid for purchase accounting FREE CASH FLOW RECONCILIATION (in US$ millions) 2005 2006 2007 Net cash provided by operating activities Decrease in sale of accounts receivable programs Capital expenditures, net Acquisition of customer accounts (ADT dealer...

  • Page 272
    ... SERVICES FLOW CONTROL SAFETY PRODUCTS ELECTRICAL & METAL PRODUCTS CORPORATE AND OTHER OPERATING INCOME (in US$ millions) OPERATING INCOME (LOSS) $ 842 $ 253 1 $ 457 6 $ 286 $ 159 $ (3,712) 2,871 $ (1,715) 7 2,871 118 4 210 46 10 Restructuring charges in cost of sales Class action...

  • Page 273
    ... Vice President and General Counsel President, Flow Control John E. Evard, Jr. *Officer of Tyco International Ltd. Senior Vice President and Chief Tax Officer Naren K. Gursahaney Senior Vice President, Operational Excellence and Chief Procurement Officer President, ADT Worldwide CORPORATE...

  • Page 274
    TYCO INTERNATIONAL LTD. 2nd Floor 90 Pitts Bay Road Pembroke HM 08, Bermuda www.tyco.com