10-K 1 tyc2013092710-k.htm 10-K TYC 2013.09.27 10-K


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________________________________________________________________________________________________________________________
FORM 10-K
(Mark One)
 
 
ý
 
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended September 27, 2013
OR
o
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
(Commission File Number) 001-13836
________________________________________________________________________________________________________________________________
TYCO INTERNATIONAL LTD.
(Exact name of Registrant as specified in its charter)
Switzerland
(Jurisdiction of Incorporation)
 
98-0390500
(I.R.S. Employer Identification Number)

Victor von Bruns-Strasse 21
CH-8212 Neuhausen am Rheinfall, Switzerland
(Address of registrant's principal executive office)
41-52-633-02-44
(Registrant's telephone number)
Securities registered pursuant to Section 12 (b) of the Act:
Title of each class
 
Name of each exchange on which registered
Common Shares, Par Value CHF 0.50
 
New York Stock Exchange
Securities registered pursuant to Section 12 (g) of the Act:  None
________________________________________________________________________________________________________________________________
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ý    No o
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o    No ý
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý    No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý    No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III or this Form 10-K or any amendment to this Form 10-K    o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of "large accelerated filer," "accelerated filer," and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):
 
 
 
 
 
 
 
Large accelerated filer ý
 
Accelerated filer o
 
Non-accelerated filer o
 (Do not check if a
smaller reporting company)
 
Smaller reporting company o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o    No ý
The aggregate market value of voting common shares held by non-affiliates of the registrant as of March 29, 2013 was approximately $14,591,005,536.
The number of common shares outstanding as of November 5, 2013 was 465,302,750.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's proxy statement filed within 120 days of the close of the registrant's fiscal year in connection with the registrant's 2014 annual general meeting of shareholders are incorporated by reference into Part III of this Form 10-K.
See page 60 to 62 for the exhibit index.



TABLE OF CONTENTS

 
 
 
 
 
Page
Part I
 
 
Part II
 
 
Part III
 
 
Part IV
 
 

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PART I

Item 1.    Business

General
Tyco International Ltd. (hereinafter referred to as "we," the "Company" or "Tyco") is a leading global provider of security products and services, fire detection and suppression products and services and life safety products. Our broad portfolio of products and services, sold under well-known brands such as Tyco, SimplexGrinnell, Sensormatic, Wormald, Ansul, Simplex, Grinnell, Scott and ADT (in jurisdictions outside of North America) serve security, fire detection and suppression and life safety needs across commercial, industrial, retail, institutional and governmental markets, as well as non-U.S. residential and small business markets. We hold market-leading positions in large, fragmented industries and we believe that we are well positioned to leverage our global footprint, deep industry experience, strong customer relationships and innovative technologies to expand our business in both developed and emerging markets. We operate and report financial and operating information in the following three operating segments:
North America Installation & Services ("NA Installation & Services") designs, sells, installs, services and monitors electronic security systems and fire detection and suppression systems for commercial, industrial, retail, institutional and governmental customers in North America.  
Rest of World ("ROW") Installation & Services ("ROW Installation & Services") designs, sells, installs, services and monitors electronic security systems and fire detection and suppression systems for commercial, industrial, retail, residential, small business, institutional and governmental customers in the ROW regions.  
Global Products designs, manufactures and sells fire protection, security and life safety products, including intrusion security, anti-theft devices, breathing apparatus and access control and video management systems, for commercial, industrial, retail, residential, small business, institutional and governmental customers worldwide, including products installed and serviced by our NA and ROW Installation & Services segments.  
We also provide general corporate services to our segments and these costs are reported as Corporate and Other.
Net revenue by segment for 2013 is as follows ($ in millions):
 
Net
Revenue
 
Percent of
Total
Net
Revenue
 
Key Brands
NA Installation & Services
$
3,891

 
37
%
 
Tyco Fire & Security, Tyco Integrated Security, SimplexGrinnell, Sensormatic
ROW Installation & Services
4,417

 
41
%
 
Tyco Fire & Security, Wormald, Sensormatic, ADT
Global Products
2,339

 
22
%
 
Tyco, Simplex, Grinnell, Ansul, DSC, Scott, American Dynamics, Software House, Visonic, Chemguard, Exacq
 
$
10,647

 
100
%
 
 
Unless otherwise indicated, references in this Annual Report to 2013, 2012 and 2011 are to Tyco's fiscal years ended September 27, 2013, September 28, 2012 and September 30, 2011, respectively. The Company has a 52 or 53-week fiscal year that ends on the last Friday in September. Fiscal 2013 and 2012 were 52-week years. Fiscal 2011 was a 53-week year.
For a detailed discussion of revenue, operating income and total assets by segment for fiscal years 2013, 2012 and 2011 see Item 7. Management's Discussion and Analysis and Note 17 to the Consolidated Financial Statements.
History and Development
Tyco International Ltd.
Tyco International Ltd. is a Company organized under the laws of Switzerland. The Company was created as a result of the July 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. Effective March 17, 2009, the Company became a Swiss corporation under articles 620 et seq. of the Swiss Code of Obligations (the "Change of Domicile").

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Effective June 29, 2007, the Company completed the spin-offs of Covidien and TE Connectivity, formerly our Healthcare and Electronics businesses, respectively, into separate, publicly traded companies (the "2007 Separation") in the form of a tax-free distribution to Tyco shareholders.
Effective September 28, 2012, the Company completed the spin-offs of The ADT Corporation ("ADT") and Pentair Ltd. (formerly known as Tyco Flow Control International Ltd. ("Tyco Flow Control")), formerly our North American residential security and flow control businesses, respectively, into separate, publicly traded companies in the form of a distribution to Tyco shareholders. Immediately following the spin-off, Pentair, Inc. was merged with a subsidiary of Tyco Flow Control in a tax-free, all-stock merger (the "Merger"), with Pentair Ltd. ("Pentair") succeeding Pentair Inc. as an independent publicly traded company. The distributions, the Merger and related transactions are collectively referred to herein as the "2012 Separation". As a result of the distribution, the operations of Tyco's former flow control and North American residential security businesses are now classified as discontinued operations in all periods presented.
Tyco's registered and principal office is located at Victor von Bruns-Strasse 21, CH-8212 Neuhausen am Rheinfall, Switzerland. Its management office in the United States is located at 9 Roszel Road, Princeton, New Jersey 08540.
Segments
Each of our three segments serves a highly diverse customer base and none is dependent upon a single customer or group of customers. For fiscal year 2013, no customer accounted for more than 10% of our revenues, and approximately 50% of our revenues were derived from customers outside of North America.
Our end-use customers, to whom we may sell directly or through wholesalers, distributors, commercial builders or contractors, can generally be grouped in the following categories:
Commercial customers, including residential and commercial property developers, financial institutions, food service businesses and commercial enterprises;
Industrial customers, including companies in the oil and gas, power generation, mining, petrochemical and other industries;
Retail customers, including international, regional and local consumer outlets;
Institutional customers, including a broad range of healthcare facilities, academic institutions, museums and foundations;
Governmental customers, including federal, state and local governments, defense installations, mass transportation networks, public utilities and other government-affiliated entities and applications; and
Residential and small business customers outside of North America, including owners of single-family homes and local providers of a wide range of goods and services.
As discussed under "Competition" below, the markets in which we compete are generally highly fragmented. We therefore compete with many other businesses in markets throughout the world, including other large global businesses, significant regional businesses and many smaller local businesses.
Installation & Services
NA Installation & Services and ROW Installation & Services (collectively, "Installation & Services") designs, sells, installs, services and monitors electronic security and fire detection and suppression systems for retail, commercial, industrial, governmental and institutional customers around the world. Additionally, ROW Installation & Services designs, sells, installs, services and monitors security systems for residential and small business customers under the ADT brand name outside of North America.
Security Services
Our Installation & Services segments design, sell, install and service security systems to detect intrusion, control access and react to movement, fire, smoke, flooding, environmental conditions, industrial processes and other hazards. These electronic security systems include detection devices that are usually connected to a monitoring center that receives and records alarm signals where security monitoring specialists verify alarm conditions and initiate a range of response scenarios. For most systems, control panels identify the nature of the alarm and the areas where a sensor was triggered. Our other security solutions include access control systems for sensitive areas such as government facilities and banks; video surveillance systems designed to deter theft and fraud and help protect employees and customers; and asset protection and security management systems designed to monitor and protect physical assets as well as proprietary electronic data. Our offerings also include anti-theft systems utilizing acousto-magnetic and radio frequency identification tags and labels in the retail industry as well as store performance solutions to enhance retailer performance. Many of the world's leading retailers use our Sensormatic anti-theft systems to help protect against shoplifting and employee theft. Many of the products that we install for our Installation &

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Services security customers are designed and manufactured by our Global Products segment. Additionally, our deep experience in designing, integrating, deploying and maintaining large-scale security systems—including, for example, centrally managed security systems that span large commercial and institutional campuses—allows us to install and/or service products manufactured by third parties.
Purchasers of our intrusion systems typically contract for ongoing security system monitoring and maintenance at the time of initial equipment installation. These contracts are generally for a term of one to three years. Systems installed at customers' premises may be owned by us or by our customers. Monitoring center personnel may respond to alarms by relaying appropriate information to local fire or police departments, notifying the customer or taking other appropriate action. In certain markets, we directly provide the alarm response services with highly trained and professionally equipped employees. In some instances, alarm systems are connected directly to local fire or police departments.
In addition, our ROW Installation & Services segment is a leading provider of monitored residential and small business security systems. In addition to traditional burglar alarm and fire detection systems, installation and monitoring services, ROW Installation & Services provides patrol and response services in select geographies, including South Africa and South Korea. Our ROW Installation & Services segment continues to expand its offering of value-added residential services worldwide, such as an interactive services platform. The interactive services platform allows for remote management of the home security system, as well as lifestyle applications, which currently include remote video, lighting control, and energy management.
Our customers are often prompted to purchase security systems by their insurance carriers, which may offer lower insurance premium rates if a security system is installed or require that a system be installed as a condition of coverage.
Fire Protection Services
Our Installation & Services segments design, sell, install and service fire detection and fire suppression systems in both new and existing facilities. Commercial construction as well as legislation mandating the installation and service of fire detection and suppression systems are significant drivers of demand for our products. Our Installation & Services segments offer a wide range of fire detection and suppression systems, including those designed and manufactured by our Global Products segment and those designed by third parties. These detection systems include fire alarm control panels, advanced fire alarm monitoring systems, smoke and flame detection systems, heat and carbon monoxide detectors and voice evacuation systems. Our Installation & Services segments also offer a wide range of standard water-based sprinkler and chemical suppression systems and custom designed special hazard suppression systems, which incorporate specialized extinguishing agents such as foams, dry chemicals and gases in addition to spill control products designed to absorb, neutralize and solidify spills of hazardous materials. These systems are often especially suited to fire suppression in industrial and commercial applications, including oil and gas, power generation, mining, petrochemical, manufacturing, transportation, data processing, telecommunications, commercial food preparation and marine applications. Our Installation & Services segments continue to focus on system maintenance and inspection, which have become increasingly important parts of our business.
Customers
Our Installation & Services customers range from Fortune 500 companies with diverse worldwide operations who look to us to provide integrated, global solutions for their fire and security needs, to single location commercial customers and individual homeowners. Our Installation & Services customer relationships generally are in the market for new construction or retrofit projects, which represented 44% of Installation & Services fiscal 2013 net revenue, and the market for aftermarket products and services, which accounted for the remaining 56% of Installation & Services fiscal 2013 net revenue. New construction projects are inherently long-lead in nature and we strive to become involved in the planning process for these projects as early as possible. We believe that by actively participating in the preliminary design stages of a new construction project and by offering our design services that combine our global expertise and knowledge of local codes and standards, we can increase our value to customers relative to many smaller local and regional competitors. With respect to fire detection and suppression installations, we prefer to become involved at the time an architectural or engineering design firm is selected. With respect to security system design and installation, we generally become involved in the later stages of a construction project or as tenants take occupancy.
Our relationships with customers in the aftermarket may include any combination of alarm monitoring, fire and security maintenance and or testing and inspection services. We also provide aftermarket services to many customers whose fire and security systems were manufactured or installed by third parties.
Global Products
Our Global Products segment designs, manufactures and sells fire protection, security and life safety products, including intrusion security, anti-theft devices, breathing apparatus, and access control and video management systems.

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Fire Protection Products
Fire Protection Products designs, manufactures, distributes and sells fire alarm and fire detection systems, automatic fire sprinkler systems and special hazard suppression systems, including many of the fire protection products that our Installation & Services segments install and service. Fire Protection Products also manufactures and sells grooved products for the rapid joining of piping in both the fire and non-fire markets. Fire Protection Products are marketed under various leading trade names, including Simplex, Wormald, Ansul, Grinnell and Tyco and include fire alarm control panels, advanced fire alarm monitoring systems, smoke, heat and carbon monoxide detectors and voice evacuation systems. Fire Protection Products also offers a wide range of water-based sprinkler systems and custom designed special hazard suppression systems, which incorporate specialized extinguishing agents such as foams, dry chemicals and gases. These systems are often especially suited to fire suppression in industrial and commercial applications, including oil and gas, power generation, mining, petrochemical, manufacturing, transportation, data processing, telecommunications, commercial food preparation and marine applications.
Fire Protection Products' systems often are purchased by facility owners through construction engineers and electrical contractors, as well as mechanical or general contractors. In recent years, retrofitting of existing buildings has increased as a result of legislation mandating the installation of fire detection and fire suppression systems, especially in hotels, restaurants, healthcare facilities and educational establishments. The 2009 edition of the International Residential Code, developed by the International Code Council, a non-profit association that develops model codes that are the predominant building and fire safety regulations followed by state and local jurisdictions in the United States, adopted a proposal advanced by firefighters and other life-safety advocates that requires sprinkler systems in new one and two-family homes and townhouses as of January 2011. This national code is not binding on state and local jurisdictions and must be adopted locally before it becomes mandatory for new homes being built in these areas. The timing and extent of adoption, if at all, will vary by jurisdiction. However, we believe that this development may offer opportunities to expand our residential fire suppression business in the United States.
Security Products
Security Products designs and manufactures a wide array of electronic security products, including integrated video surveillance and access control systems to enable businesses to manage their security and enhance business performance. Our global access control solutions include integrated security management systems for enterprise applications, access control solutions applications, alarm management panels, door controllers, readers, keypads and cards. Our global video system solutions include digital video management systems, matrix switchers and controllers, digital multiplexers, programmable cameras, monitors and liquid crystal interactive displays. Our security products for homes and businesses range from basic burglar alarms to comprehensive interactive security systems including alarm control panels, keypads, sensors and central station receiving equipment used in security monitoring centers. Our offerings also include anti-theft systems utilizing acousto magnetic and radio frequency identification tags and labels in the retail industry. Our security products are marketed under various leading trade names, including Software House, DSC, American Dynamics, Sensormatic, Visonic and Exacq. Many of the world's leading retailers use our Sensormatic anti-theft systems to help protect against shoplifting and employee theft. Security Products manufactures many of the security products that our Installation & Services business installs and services.
Life Safety Products
Life Safety Products manufactures life safety products, including self-contained breathing apparatus designed for firefighter, industrial and military use, supplied air respirators, air-purifying respirators, thermal imaging cameras, gas detection equipment, gas masks and personal protection equipment. The Life Safety Products business operates under various leading trade names, including Scott Safety and Protector. Our breathing apparatus are used by the military forces of several countries and many U.S. firefighters rely on the Scott Air-Pak brand of self-contained breathing apparatus.
Customers
Global Products sells products through our Installation & Service segments and indirect distribution channels around the world. Some of Global Products' channel business partners act as dealers selling to smaller fire and security contractors that install fire detection and suppression, security and theft protection systems, whereas others act as integrators that install the products themselves. Builders, contractors and developers are customers for our sprinkler products. End customers for our breathing apparatus and related products include fire departments, municipal and state governments and military forces as well as major companies in the industrial sector.
Competition
The markets that we serve are generally highly competitive and fragmented with a small number of large, global firms and thousands of smaller regional and local companies. Competition is based on price, specialized product capacity, breadth of product line, training, support and delivery, with the relative importance of these factors varying depending on the project

6


complexity, product line, the local market and other factors. Rather than compete primarily on price, we emphasize the quality of our products and services, the reputation of our brands and our knowledge of customers' fire and security needs. Among large industrial, commercial, governmental and institutional customers, we believe that our comprehensive global coverage and product and service offerings provide a competitive advantage. We also believe that our systems integration capabilities, which allow us to offer global solutions to customers that fully integrate our security and/or fire offerings into existing information technology networks, business operations and management tools, and process automation and control systems, set us apart from all but a small number of other large, global competitors.
Competitive dynamics in the fire and security industry generally result in more direct competition and lower margins for installation projects compared to aftermarket products and services. We generally face the greatest competitive pricing pressure for the installation of products that have become more commoditized over time, including standard commercial sprinkler systems and closed-circuit television systems.
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, trademarks, copyrights and other proprietary rights are important to our business. We also rely upon trade secrets, manufacturing know-how, continuing technological innovations and licensing opportunities to maintain and improve our competitive position. We review third-party proprietary rights, including trademarks, patents and patent applications, in an effort to develop an effective intellectual property strategy, avoid infringement of third-party proprietary rights, identify licensing opportunities and misappropriation of our proprietary rights, and monitor the intellectual property claims of others.
We own a portfolio of patents that principally relates to: electronic security products and systems for intrusion detection, access control, electronic identification tags & video surveillance; fire protection products and systems, including fire detection and fire suppression with chemical, gas, foam and water agents; personal protective products and systems for fire and other hazards. We also own a portfolio of trademarks and are a licensee of various patents and trademarks. Patents for individual products extend for varying periods according to the date of patent filing or grant and the legal term of patents in the various countries where patent protection is obtained. Trademark rights may potentially extend for longer periods of time and are dependent upon national laws and use of the marks.
While we consider our patents to be valuable assets that help prevent or delay the commoditization of our products and thus extend their life cycles, we do not believe that our overall operations are dependent upon any single patent or group of related patents. We share the ADT® trademark with ADT and operate under a brand governance agreement between the two companies.
Research and Development
We are engaged in research and development in an effort to introduce new products, to enhance the effectiveness, ease of use, safety and reliability of our existing products and to expand the applications for which the uses of our products are appropriate. For example, in order to position ourselves to participate in and lead the development of residential interactive platforms, enterprise-wide integrated access control platforms and transition IP video platforms, we have made significant investments in our security products portfolio. In addition, we continually evaluate developing technologies in areas that we believe will enhance our business for possible investment. Our research and development expense was $174 million in 2013, $145 million in 2012 and $129 million in 2011 related to new product development.
Raw and Other Purchased Materials
We are a large buyer of metals and other commodities, including fuel for our vehicle fleet. We purchase materials from a large number of independent sources around the world and have experienced no shortages that have had a material adverse effect on our businesses. We enter into long-term supply contracts, using fixed or variable pricing to manage our exposure to potential supply disruptions. Significant changes in certain raw material, including steel, brass and certain flurochemicals used in our fire suppression agents, may have an adverse impact on costs and operating margins.
Governmental Regulation and Supervision
Our operations are subject to numerous federal, state and local laws and regulations, both within and outside the United States, in areas such as: consumer protection, government contracts, international trade, environmental protection, labor and employment, tax, licensing and others. For example, most U.S. states and non-U.S. jurisdictions in which we operate have licensing laws directed specifically toward the alarm and fire suppression industries. Our security businesses currently rely

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extensively upon the use of wireline and wireless telephone service to communicate signals. Wireline and wireless telephone companies in the United States are regulated by the federal and state governments. In addition, government regulation of fire safety codes can impact our fire businesses. These and other laws and regulations impact the manner in which we conduct our business, and changes in legislation or government policies can affect our worldwide operations, both favorably and unfavorably. For a more detailed description of the various laws and regulations that affect our business, see Item 1A. Risk Factors—Risks Related to Legal, Regulatory and Compliance Matters and Item 3. Legal Proceedings.
Environmental Matters
We are subject to numerous foreign, federal, state and local environmental protection and health and safety laws governing, among other things, the generation, storage, use and transportation of hazardous materials; emissions or discharges of substances into the environment; and the health and safety of our employees.
Certain environmental laws assess liability on current or previous owners or operators of real property for the cost of removal or remediation of hazardous substances at their properties or at properties at which they have disposed of hazardous substances. In addition to cleanup actions brought by governmental authorities, private parties could bring personal injury or other claims due to the presence of, or exposure to, hazardous substances or pursuant to indemnifications provided by us in connection with asset disposals. We have received notification from the U.S. Environmental Protection Agency and from state environmental agencies that conditions at a number of sites where we and others disposed of hazardous substances require cleanup and other possible remedial action and may require that we reimburse the 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 by us or by other businesses that previously owned or used the properties.
Given uncertainties regarding the extent of the required cleanup, the interpretation of applicable laws and regulations and alternative cleanup methods, the ultimate cost of cleanup at disposal sites and manufacturing facilities is difficult to predict. Based upon our experience, current information regarding known contingencies and applicable laws, we concluded that it is probable that we would incur remedial costs in the range of approximately $74 million to $162 million as of September 27, 2013. As of September 27, 2013, we concluded that the best estimate within this range is approximately $105 million, of which $82 million is included in Accrued and other current liabilities and Accounts payable and $23 million is included in Other liabilities in the Company's Consolidated Balance Sheet. The majority of these liabilities relate to the ongoing remediation efforts at a facility in our Global Products segment located in Marinette, Wisconsin. In view of our financial position and reserves for environmental matters, we believe that any potential payment of such estimated amounts will not have a material adverse effect on our financial position, results of operations or cash flows. For a more detailed description of these liabilities, see Item 3. Legal Proceedings and Note 13 to the Consolidated Financial Statements.
Employees
As of September 27, 2013, we employed approximately 70,000 people worldwide, of which approximately 20,000 were employed in the United States and approximately 50,000 were outside the United States. Approximately 7,000 employees are covered by collective bargaining agreements or works councils and we believe that our relations with the labor unions are generally good.
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., Room 1580, Washington, DC 20549. Investors may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains an Internet site at http://www.sec.gov that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC, from which investors can electronically access Tyco's SEC filings.
Our Internet website is www.tyco.com. We make available free of charge on or through our website our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, reports filed pursuant to Section 16 and any amendments to those reports filed or furnished pursuant to section 13(a) or 15(d) of the exchange act as soon as reasonably practicable after we electronically file or furnish such materials to the SEC. As a Swiss company, we prepare Swiss statutory financial statements, including Swiss consolidated financial statements, on an annual basis. A copy of the Swiss statutory financial statements is distributed along with our annual report to shareholders, and all of the aforementioned reports will be made available to our shareholders upon their request. In addition, we have posted the charters for our Audit Committee, Compensation and Human Resources Committee, and Nominating and Governance Committee, as well as our Board Governance Principles and Guide to Ethical Conduct, on our website under the headings "About—Board of Directors" and

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"About—Our People and Values." The annual report to shareholders, charters and principles are not incorporated in this report by reference. We will also provide a copy of these documents free of charge to shareholders upon request.
Item 1A.    Risk Factors
        You should carefully consider the risks described below before investing in our publicly traded securities. The risks described below are not the only ones facing us. Our business is also subject to the risks that affect many other companies, such as technological obsolescence, labor relations, geopolitical events, climate change and international operations.
Risks Relating to Our Businesses
General economic and cyclical industry conditions may adversely affect our financial condition, results of operations or cash flows.
Our operating results have been and may in the future be adversely affected by general economic conditions and the cyclical pattern of certain markets that we serve. For example, demand for our services and products is significantly affected by the level of commercial and residential construction, industrial capital expenditures for facility expansions and maintenance and the amount of discretionary business and consumer spending, each of which historically has displayed significant cyclicality. Even if demand for our products is not negatively affected, the liquidity and financial position of our customers could impact their ability to pay in full and/or on a timely basis.
Much of the demand for installation of security products and fire detection and suppression solutions is driven by commercial and residential construction and industrial facility expansion and maintenance projects. Commercial and residential construction projects are heavily dependent on general economic conditions, localized demand for commercial and residential real estate and availability of credit. In recent years, many commercial and residential real estate markets have experienced significant fluctuations in supply and demand, and this volatility may continue indefinitely. In addition, most commercial and residential real estate developers rely heavily on project financing from banks and other institutional lenders in order to initiate and complete projects. Declines in real estate values in many parts of the world have led to significant reductions in the availability of project financing, even in markets where demand may otherwise be sufficient to support new construction. These factors have in turn hampered demand for new fire detection and suppression and security installations.
Levels of industrial capital expenditures for facility expansions and maintenance turn on general economic conditions, economic conditions within specific industries we serve, expectations of future market behavior and available financing. Additionally, volatility in commodity prices can negatively affect the level of these activities and can result in postponement of capital spending decisions or the delay or cancellation of existing orders.
The businesses of many of our industrial customers, particularly oil and gas companies, chemical and petrochemical companies and general industrial companies, are to varying degrees cyclical and have experienced periodic downturns. During such economic downturns, customers in these industries historically have tended to delay major capital projects, including greenfield construction, expensive maintenance projects and upgrades. Additionally, demand for our products and services may be affected by volatility in energy and commodity prices and fluctuating demand forecasts, as our customers may be more conservative in their capital planning, which may reduce demand for our products and services. Although our industrial customers tend to be less dependent on project financing than real estate developers, disruptions in financial markets and banking systems, could make credit and capital markets difficult for our customers to access, and could raise the cost of new debt for our customers to prohibitive levels. Any difficulty in accessing these markets and the increased associated costs can have a negative effect on investment in large capital projects, including necessary maintenance and upgrades, even during periods of favorable end-market conditions.
Many of our customers outside of the industrial and commercial sectors, including governmental and institutional customers, have experienced budgetary constraints as sources of revenue, including tax receipts, general obligation and construction bonds, endowments and donations, have been negatively impacted by adverse economic conditions. These budgetary constraints have in the past and may in the future reduce demand for our products and services among governmental and institutional customers.
Reduced demand for our products and services could result in the delay or cancellation of existing orders or lead to excess capacity, which unfavorably impacts our absorption of fixed costs. This reduced demand may also erode average selling prices in the industries we serve. Any of these results could materially and adversely affect our business, financial condition, results of operations and cash flows.

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We face competition in each of our businesses, which results in pressure on our profit margins and limits our ability to maintain or increase the market share of our products and services. If we cannot successfully compete in an increasingly global market-place, our operating results may be adversely affected.
We operate in competitive domestic and international markets and compete with many highly competitive manufacturers and service providers, both domestically and on a global basis. Our manufacturing businesses face competition from lower cost manufacturers in Asia and elsewhere and our service businesses face competition from alternative service providers around the world. Currently, key components of our competitive position are our ability to bring to market industry-leading products and services, to adapt to changing competitive environments and to manage expenses successfully. These factors require continuous management focus on maintaining our competitive position through technological innovation, cost reduction, productivity improvement and a regular appraisal of our asset portfolio. If we are unable to maintain our position as a market leader, or to achieve appropriate levels of scalability or cost-effectiveness, or if we are otherwise unable to manage and react to changes in the global marketplace, our business, financial condition, results of operations and cash flows could be materially and adversely affected.
Our future growth is largely dependent upon our ability to continue to adapt our products, services and organization to meet the demands of local markets in both developed and emerging economies and by developing or acquiring new technologies that achieve market acceptance with acceptable margins.
Our businesses operate in global markets that are characterized by evolving industry standards. Although many of our largest competitors are also global industrial companies, we compete with thousands of smaller regional and local companies that may be positioned to offer products and services at lower cost than ours, particularly in emerging markets, or to capitalize on highly localized relationships and knowledge that are difficult for us to replicate. We have found that in several emerging markets potential customers prefer local suppliers, in some cases because of existing relationships and in other cases because of local legal restrictions or incentives that favor local businesses.
Accordingly, our future success depends upon a number of factors, including our ability to: adapt our products, services, organization, workforce and sales strategies to fit localities throughout the world, particularly in high growth emerging markets; identify emerging technological and other trends in our target end-markets; and develop or acquire, manufacture and bring competitive products and services to market quickly and cost-effectively. Adapting our businesses to serve more local markets will require us to invest considerable resources in building our distribution channels and engineering and manufacturing capabilities in those markets to ensure that we can address customer demand. Even when we invest in growing our business in local markets, we may not be successful for any number of reasons, including competitive pressure from regional and local businesses that may have superior local capabilities or products that are produced more locally at lower cost. Our ability to develop or acquire new products and services can affect our competitive position and requires the investment of significant resources. These acquisitions and development efforts divert resources from other potential investments in our businesses, and they may not lead to the development of new technologies, products or services on a timely basis. Moreover, as we introduce new products, we may be unable to detect and correct defects in the design of a product or in its application to a specified use, which could result in loss of sales or delays in market acceptance. Even after introduction, new or enhanced products may not satisfy consumer preferences and product failures may cause consumers to reject our products. As a result, these products may not achieve market acceptance and our brand images could suffer. In addition, the markets for our products and services may not develop or grow as we anticipate. As a result, the failure to effectively adapt our products and services to the needs of local markets, the failure of our technology, products or services to gain market acceptance, the potential for product defects or the obsolescence of our products and services could significantly reduce our revenues, increase our operating costs or otherwise materially and adversely affect our business, financial condition, results of operations and cash flows.
We are exposed to greater risks of liability for employee acts or omissions, or system failure, than may be inherent in other businesses.
If a customer or third party believes that he or she has suffered harm to person or property due to an actual or alleged act or omission of one of our employees or a security or fire system failure, he or she may pursue legal action against us, and the cost of defending the legal action and of any judgment could be substantial. In particular, because our products and services are intended to protect lives and real and personal property, we may have greater exposure to litigation risks than businesses that provide other products and services. We could face liability for failure to respond adequately to alarm activations or failure of our fire protection systems to operate as expected. The nature of the services we provide exposes us to the risks that we may be held liable for employee acts or omissions or system failures. In an attempt to reduce this risk, our installation, service and monitoring agreements and other contracts contain provisions limiting our liability in such circumstances, and we typically maintain product liability insurance to mitigate the risk that our products and services fail to operate as expected. However, in the event of litigation with respect to such matters, it is possible that contract limitations may be deemed not applicable or unenforceable, that our insurance coverage is not adequate, or that insurance carriers deny coverage of our claims. As a result,

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such employee acts or omissions or system failures could have a material adverse effect on our business, financial condition, results of operations and cash flows.
We face risks relating to doing business internationally that could adversely affect our business.
Our business operates and serves consumers worldwide. There are certain risks inherent in doing business internationally, including:
economic volatility and the impact of economic conditions in various regions;
the difficulty of enforcing agreements, collecting receivables and protecting assets, especially our intellectual property rights, through non-U.S. legal systems;
possibility of unfavorable circumstances from host country laws, regulations or licensing requirements;
fluctuations in revenues, operating margins and other financial measures due to currency exchange rate fluctuations and restrictions on currency and earnings repatriation;
trade protection measures, import or export restrictions, licensing requirements and local fire and security codes and standards;
increased costs and risks of developing, staffing and simultaneously managing a number of foreign operations as a result of distance as well as language and cultural differences;
issues related to occupational safety and adherence to local labor laws and regulations;
potentially adverse tax developments;
longer payment cycles;
changes in the general political, social and economic conditions in the countries where we operate, particularly in emerging markets;
the threat of nationalization and expropriation;
the presence of corruption in certain countries; and
fluctuations in available municipal funding in those instances where a project is government financed.
One or more of these factors could adversely affect our business and financial condition.
In order to manage our day-to-day operations, we must overcome cultural and language barriers and assimilate different business practices. In addition, we are required to create compensation programs, employment policies and other administrative programs that comply with laws of multiple countries. We also must communicate and monitor standards and directives across our global network. Our failure to successfully manage our geographically diverse operations could impair our ability to react quickly to changing business and market conditions and to enforce compliance with standards and procedures, any of which could adversely impact our financial condition, results of operations and cash flows.
Volatility in currency exchange rates, commodity prices and interest rates may adversely affect our financial condition, results of operations or cash flows.
A significant portion of our revenue and certain of our costs, assets and liabilities, are denominated in currencies other than the U.S. dollar. Certain of the foreign currencies to which we have exposure have undergone significant devaluation in the past, which can reduce the value of our local monetary assets, reduce the U.S. dollar value of our local cash flow and potentially reduce the U.S. dollar value of future local net income. Although we intend to enter into forward exchange contracts to economically hedge some of our risks associated with transactions denominated in certain foreign currencies, no assurances can be made that exchange rate fluctuations will not adversely affect our financial condition, results of operations and cash flows.
In addition, we are a large buyer of metals and other non-metal commodities, including fossil fuels for our manufacturing operations and our vehicle fleet, the prices of which have fluctuated significantly in recent years. Increases in the prices of some of these commodities could increase the costs of manufacturing our products and providing our services. We may not be able to pass on these costs to our customers or otherwise effectively manage price volatility and this could have a material adverse effect on our financial condition, results of operations or cash flows. Further, in a declining price environment, our operating margins may contract because we account for inventory using the first-in, first-out method.
We monitor these exposures as an integral part of our overall risk management program. In some cases, we may enter into hedge contracts to insulate our results of operations from these fluctuations. These hedges are subject to the risk that our counterparty may not perform. As a result, changes in currency exchange rates, commodity prices and interest rates could have a material adverse effect on our business, financial condition, results of operations and cash flows.

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Our business strategy includes acquiring companies and making investments that complement our existing business. These acquisitions and investments could be unsuccessful or consume significant resources, which could adversely affect our operating results.
We will continue to analyze and evaluate the acquisition of strategic businesses or product lines with the potential to strengthen our industry position or enhance our existing set of product and services offerings. These acquisitions are likely to include businesses in emerging markets, which are often riskier than acquisitions in developed markets. We cannot assure you that we will identify or successfully complete transactions with suitable acquisition candidates in the future. Nor can we assure you that completed acquisitions will be successful.
Acquisitions and investments may involve significant cash expenditures, debt incurrence, operating losses and expenses that could have a material adverse effect on our business, financial condition, results of operations and cash flows. Acquisitions involve numerous other risks, including:
diversion of management time and attention from daily operations;
difficulties integrating acquired businesses, technologies and personnel into our business;
inability to obtain required regulatory approvals and/or required financing on favorable terms;
potential loss of key employees, key contractual relationships, or key customers of acquired companies or of us;
assumption of the liabilities and exposure to unforeseen liabilities of acquired companies; and
dilution of interests of holders of our common shares through the issuance of equity securities or equity-linked securities.
It may be difficult for us to complete transactions quickly and to integrate acquired operations efficiently into our current business operations. Moreover, we may be unable to obtain strategic or operational benefits that are expected from our acquisitions. Any acquisitions or investments may ultimately harm our business or financial condition, as such acquisitions may not be successful and may ultimately result in impairment charges.
A significant percentage of our future growth is anticipated to come from emerging markets, and if we are unable to expand our operations in emerging markets, our growth rate could be negatively affected.
One aspect of our growth strategy is to seek significant growth in emerging markets, including China, India, Latin America and the Middle East, through both organic investments and through acquisitions. Emerging markets generally involve greater financial and operational risks than more mature markets, where legal systems are more developed and familiar to us. In some cases, emerging markets have greater political and economic volatility, greater vulnerability to infrastructure and labor disruptions, are more susceptible to corruption, and are locations where it may be more difficult to impose corporate standards and procedures. Negative or uncertain political climates in developing and emerging markets could also adversely affect us.
We cannot guarantee that our growth strategy will be successful. If we are unable to manage the risks inherent in our growth strategy in emerging markets, including civil unrest, international hostilities, natural disasters, security breaches and failure to maintain compliance with multiple legal and regulatory systems, our results of operations and ability to grow could be materially adversely affected.
Failure to maintain and upgrade the security of our information and technology networks, including personally identifiable and other information; non-compliance with our contractual or other legal obligations regarding such information; or a violation of the Company's privacy and security policies with respect to such information, could adversely affect us.
We are dependent on information technology networks and systems, including the Internet, to process, transmit and store electronic information, and, in the normal course of our business, we collect and retain significant volumes of certain types of personally identifiable and other information pertaining to our customers, stockholders and employees. The legal, regulatory and contractual environment surrounding information security and privacy is constantly evolving and companies that collect and retain such information are under increasing attack by cyber-criminals around the world. A significant actual or potential theft, loss, fraudulent use or misuse of customer, stockholder, employee or our data, whether by third parties or as a result of employee malfeasance or otherwise, non-compliance with our contractual or other legal obligations regarding such data or a violation of our privacy and security policies with respect to such data could adversely impact our reputation and could result in significant costs, fines, litigation or regulatory action against us. In addition, we depend on our information technology infrastructure for business-to-business and business-to-consumer electronic commerce. Security breaches of this infrastructure can create system disruptions and shutdowns that could result in disruptions to our operations. Increasingly, our security products and services are accessed through the Internet, and security breaches in connection with the delivery of our services via the Internet may affect us and could be detrimental to our reputation, business, operating results and financial condition. We cannot be certain that advances in criminal capabilities, new discoveries in the field of cryptography or other developments will not compromise or breach the technology protecting the networks that access our products and services.

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Failure to maintain, upgrade and consolidate our information and technology networks could adversely affect us.
We are continuously upgrading and consolidating our systems, including making changes to legacy systems, replacing legacy systems with successor systems with new functionality and acquiring new systems with new functionality. These types of activities subject us to inherent costs and risks associated with replacing and changing these systems, including impairment of our ability to fulfill customer orders, potential disruption of our internal control structure, substantial capital expenditures, additional administration and operating expenses, retention of sufficiently skilled personnel to implement and operate the new systems, demands on management time, and other risks and costs of delays or difficulties in transitioning to new systems or of integrating new systems into our current systems. Our system implementations may not result in productivity improvements at a level that outweighs the costs of implementation, or at all. In addition, the implementation of new technology systems may cause disruptions in our business operations and have an adverse effect on our business and operations, if not anticipated and appropriately mitigated.
If we cannot obtain sufficient quantities of materials, components and equipment required for our manufacturing activities at competitive prices and quality and on a timely basis, or if our manufacturing capacity does not meet demand, our financial condition, results of operations and cash flows may suffer.
We purchase materials, components and equipment from unrelated parties for use in our manufacturing operations. If we cannot obtain sufficient quantities of these items at competitive prices and quality and on a timely basis, we may not be able to produce sufficient quantities of product to satisfy market demand, product shipments may be delayed or our material or manufacturing costs 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 for competing products to gain market acceptance and otherwise materially and adversely affect our business, financial condition, results of operations and cash flows.
Failure to attract, motivate, train and retain qualified personnel could adversely affect our business.
Our culture and guiding principles focus on continuously training, motivating and developing employees, and in particular we strive to attract, motivate, train and retain qualified engineers and managers to handle the day-to-day operations of a highly diversified organization. Many of our manufacturing processes, and many of the integrated solutions we offer, are highly technical in nature. Our ability to expand or maintain our business depends on our ability to hire, train and retain engineers and other technical professionals with the skills necessary to understand and adapt to the continuously developing needs of our customers. This includes developing talent and leadership capabilities in emerging markets, where the depth of skilled employees is often limited and competition for resources is intense. Our geographic expansion strategy in emerging markets depends on our ability to attract, retain and integrate qualified managers and engineers. If we fail to attract, motivate, train and retain qualified personnel, or if we experience excessive turnover, we may experience declining sales, manufacturing delays or other inefficiencies, increased recruiting, training and relocation costs and other difficulties, and our business, financial condition, results of operations and cash flows could be materially and adversely affected.
We may be required to recognize substantial impairment charges in the future.
Pursuant to accounting principles generally accepted in the United States, we are required to assess our goodwill, intangibles and other long-lived assets periodically to determine whether they are impaired. Disruptions to our business, unfavorable end-market conditions and protracted economic weakness, unexpected significant declines in operating results of reporting units, divestitures and market capitalization declines may result in material charges for goodwill and other asset impairments. We maintain significant goodwill and intangible assets on our balance sheet, and we believe these balances are recoverable. However, fair value determinations require considerable judgment and are sensitive to change. Impairments to one or more of our reporting units could occur in future periods whether or not connected with the annual impairment analysis. Future impairment charges could materially affect our reported earnings in the periods of such charges and could adversely affect our financial condition and results of operations.
Our residential and commercial security businesses may experience higher rates of customer attrition, which may reduce our future revenue and cause us to change the estimated useful lives of assets related to our security monitoring customers, increasing our depreciation and amortization expense.
If our residential security customers (located outside of North America) or our commercial security customers are dissatisfied with our products or services and switch to competitive products or services, or disconnect for other reasons, our recurring revenue and results of operations may be materially adversely affected. The risk is more pronounced in times of economic uncertainty, as customers may reduce amounts spent on the products and services we provide. We amortize the costs of acquired monitoring contracts and related customer relationships based on the estimated life of the customer relationships. Internally generated residential and commercial pools are similarly depreciated. If customer disconnect rates were to rise

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significantly, we may be required to accelerate the depreciation and amortization of subscriber system assets and intangible assets, which could cause a material adverse effect on our financial condition or results of operations.
Divestitures of some of our businesses or product lines may materially adversely affect our financial condition, results of operations or cash flows.
We continually evaluate the performance of all of our businesses and may sell businesses or product lines. Divestitures involve risks, including difficulties in the separation of operations, services, products and personnel, the diversion of management's attention from other business concerns, the disruption of our business, the potential loss of key employees and the retention of uncertain environmental or other contingent liabilities related to the divested business. In addition, divestitures may result in significant asset impairment charges, including those related to goodwill and other intangible assets, which could have a material adverse effect on our financial condition and results of operations. We cannot assure you that we will be successful in managing these or any other significant risks that we encounter in divesting a business or product line, and any divestiture we undertake could materially and adversely affect our business, financial condition, results of operations and cash flows.
Our business may be adversely affected by work stoppages, union negotiations, labor disputes and other matters associated with our labor force.
We employ approximately 70,000 people worldwide. Approximately 10% of these employees are covered by collective bargaining agreements or works council. Although we believe that our relations with the labor unions and works councils that represent our employees are generally good and we have experienced no material strikes or work stoppages recently, no assurances can be made that we will not experience in the future these and other types of conflicts with labor unions, works council, other groups representing employees or our employees generally, or that any future negotiations with our labor unions will not result in significant increases in our cost of labor. Additionally, a work stoppage at one of our suppliers could materially and adversely affect our operations if an alternative source of supply were not readily available. Stoppages by employees of our customers could also result in reduced demand for our products.
A material disruption of our operations, particularly at our monitoring and/or manufacturing facilities, could adversely affect our business.
If our operations, particularly at our monitoring facilities and/or manufacturing facilities, were to be disrupted as a result of significant equipment failures, natural disasters, power outages, fires, explosions, terrorism, sabotage, adverse weather conditions, public health crises, labor disputes or other reasons, we may be unable to effectively respond to alarm signals, fill customer orders and otherwise meet obligations to or demand from our customers, which could adversely affect our financial performance.
Interruptions in production could increase our costs and reduce our sales. Any interruption in production capability could require us to make substantial capital expenditures or purchase alternative material at higher costs to fill customer orders, which could negatively affect our profitability and financial condition. We maintain property damage insurance that we believe to be adequate to provide for reconstruction of facilities and equipment, as well as business interruption insurance to mitigate losses resulting from any production interruption or shutdown caused by an insured loss. However, any recovery under our insurance policies may not offset the lost sales or increased costs that may be experienced during the disruption of operations, which could adversely affect our business, financial condition, results of operations and cash flow.
We may be unable to execute our strategies following the spin-offs of ADT and Tyco Flow Control.
In connection with the spin-offs of our former North American residential and small business security business and flow control businesses in September 2012, we anticipated certain financial, operational, managerial and other benefits to Tyco, and in particular we commenced certain productivity and other strategic initiatives following the spin-offs intended to reduce complexity, restructure operations and leverage Tyco’s scale in certain areas such as sourcing. We may not be able to achieve the anticipated results of these actions on the scale that we expected, and the anticipated benefits of the spin-offs, and the productivity and other strategic initiatives may not be fully realized.
We and ADT have entered into non-compete and non-solicit restrictions that prohibit us from competing with ADT in the residential and small business security business in the United States and Canada, and prohibit ADT from competing with us in the commercial fire and security businesses, in each case until September 29, 2014.
The ADT Separation and Distribution Agreement entered into in connection with the spin-offs includes non-compete provisions pursuant to which (i) we are prohibited from competing with ADT in the residential and small business security business in the United States and Canada and (ii) ADT is prohibited from competing with Tyco in the commercial fire and security businesses, subject to certain small business related exceptions, in each case until September 29, 2014. In addition, the

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ADT Separation and Distribution Agreement contains non-solicitation provisions preventing (i) us from soliciting ADT’s residential small business customers in the United States and Canada and (ii) ADT from soliciting our security customers, in each case until September 29, 2014. This effectively prevents us from expanding into ADT’s business, and ADT from expanding into our business, in these jurisdictions until September 29, 2014. When these restrictions expire, ADT could seek to compete with us for commercial security customers, especially smaller businesses. If ADT were successful in this regard, it could materially and adversely affect our business, financial condition, results and operations and cash flows.
In connection with the 2012 Separation, we re-branded our North American commercial security business to Tyco Integrated Security and we no longer own the right to use the ADT® brand name in the United States and Canada.
Prior to the spin-off of ADT in September 2012, we re-branded our North American commercial security business to Tyco Integrated Security. There is no assurance that we will be able to achieve name recognition or status under our new brand that is comparable to the recognition and status previously enjoyed. The failure of these initiatives could adversely affect our ability to attract and retain customers, resulting in reduced revenues. In addition, as a result of the spin-offs, we own the ADT® brand name in jurisdictions outside of the United States and Canada, and ADT owns the brand name in the United States and Canada. Although we have entered agreements with ADT designed to protect the value of the ADT® brand, we cannot assure you that actions taken by ADT will not negatively impact the value of the brand outside of the United States and Canada. These factors expose us to the risk that the ADT® brand name could suffer reputational damage or devaluation for reasons outside of our control, including ADT's business conduct in the United States and Canada. Any of these factors may materially and adversely affect our business, financial condition, results of operations and cash flows.
Risks Related to Legal, Regulatory and Compliance Matters
We are subject to a variety of claims and litigation that could cause a material adverse effect on our financial condition, results of operations and cash flows.
In the normal course of our business, we are subject to claims and lawsuits, including from time to time claims for damages related to product liability and warranties, litigation alleging the infringement of intellectual property rights, litigation alleging anti-competitive behavior, and litigation related to employee matters and commercial disputes. In certain circumstances, patent infringement and anti-trust laws permit successful plaintiffs to recover treble damages. Furthermore, we face exposure to product liability claims in the event that any of our products results in personal injury or property damage. The defense of these lawsuits may involve significant expense and diversion of our management's attention. In addition, we may be required to pay damage awards or settlements, become subject to injunctions or other equitable remedies or suffer from adverse publicity that could have a material adverse effect on our business, financial condition, results of operations and cash flows.
We are subject to product liability claims relating to products we manufacture or install. These claims could result in significant costs and liabilities and reduce our profitability.
We face exposure to product liability claims in the event that any of our products results in personal injury or property damage. In addition, if any of our products prove to be defective, we may be required to recall or redesign such products, which could result in significant unexpected costs. Any insurance we maintain may not be available on terms acceptable to us, such coverage may not be adequate for liabilities actually incurred, and our insurance carriers may deny coverage for claims made by us. Any claim or product recall could result in adverse publicity against us, which could adversely affect our financial condition, results of operations or cash flows.
In addition, we could face liability for failure to respond adequately to alarm activations or failure of our fire protection systems to operate as expected. The nature of the services we provide exposes us to the risks that we may be held liable for employee acts or omissions or system failures. In an attempt to reduce this risk, our alarm monitoring agreements and other contracts contain provisions limiting our liability in such circumstances. We cannot provide assurance, however, that these limitations will be enforced. Losses from such litigation could be material to our financial condition, results of operations or cash flows.
Our businesses operate in a regulated industry.
Our operations and employees are subject to various U.S. federal, state and local licensing laws, fire and security codes and standards and other laws and regulations. In certain jurisdictions, we are required to obtain licenses or permits to comply with standards governing employee selection and training and to meet certain standards in the conduct of our business. The loss of such licenses, or the imposition of conditions to the granting or retention of such licenses, could have a material adverse effect on us. Furthermore, our systems generally must meet fire and building codes in order to be installed, and it is possible that our current or future products will fail to meet such codes, which could require us to make costly modifications to our products or to forgo marketing in certain jurisdictions.

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Changes in laws or regulations could require us to change the way we operate or to utilize resources to maintain compliance, which could increase costs or otherwise disrupt operations. In addition, failure to comply with any applicable laws or regulations could result in substantial fines or revocation of our operating permits and licenses. If laws and regulations were to change or if we or our products failed to comply, our business, financial condition and results of operations could be materially and adversely affected.
Our international operations are subject to a variety of complex and continually changing laws and regulations.
Due to the international scope of our operations, the system of laws and regulations to which we are subject is complex and includes regulations issued by the U.S. Customs and Border Protection, the U.S. Department of Commerce's Bureau of Industry and Security, the U.S. Treasury Department's Office of Foreign Assets Control and various non U.S. governmental agencies, including applicable export controls, customs, currency exchange control and transfer pricing regulations, as applicable. No assurances can be made that we will continue to be found to be operating in compliance with, or be able to detect violations of, any such laws or regulations. In addition, we cannot predict the nature, scope or effect of future regulatory requirements to which our international operations might be subject or the manner in which existing laws might be administered or interpreted.
We could be adversely affected by violations of the U.S. Foreign Corrupt Practices Act and similar anti-bribery laws outside the United States.
The U.S. Foreign Corrupt Practices Act (the "FCPA") and similar anti-bribery laws in other jurisdictions generally prohibit companies and their intermediaries from making improper payments to government officials or other persons for the purpose of obtaining or retaining business. Recent years have seen a substantial increase in anti-bribery law enforcement activity, with more frequent and aggressive investigations and enforcement proceedings by both the Department of Justice ("DOJ") and the U.S. Securities and Exchange Commission ("SEC"), increased enforcement activity by non-U.S. regulators, and increases in criminal and civil proceedings brought against companies and individuals. Our policies mandate compliance with these anti-bribery laws. We operate in many parts of the world that are recognized as having governmental and commercial corruption and in certain circumstances, strict compliance with anti-bribery laws may conflict with local customs and practices. Because many of our customers and end users are involved in infrastructure construction and energy production, they are often subject to increased scrutiny by regulators. We cannot assure you that our internal control policies and procedures will always protect us from reckless or criminal acts committed by our employees or third party intermediaries. In the event that we believe or have reason to believe that our employees or agents have or may have violated applicable anti-corruption laws, including the FCPA, we may be required to investigate or have outside counsel investigate the relevant facts and circumstances, which can be expensive and require significant time and attention from senior management. Violations of these laws may result in criminal or civil sanctions, which could disrupt our business and result in a material adverse effect on our reputation, business, results of operations or financial condition.
Furthermore, in September 2012 we agreed to the settlement of charges related to alleged FCPA violations with the DOJ and SEC. In connection with the settlement, we entered into a consent agreement with the SEC and a non-prosecution agreement with the DOJ, and a subsidiary of ours (which is no longer part of Tyco as a result of the 2012 Separation) pleaded guilty to one count of conspiracy to violate the FCPA. Pursuant to the non-prosecution agreement, we have acknowledged that a number of our subsidiaries made payments, both directly and indirectly, to government officials in order to obtain and retain business with private and state-owned entities, and falsely described the payments in the subsidiaries' books, records and accounts. The non-prosecution agreement also acknowledges Tyco's timely, voluntary and complete disclosure to the DOJ, and our cooperation with the DOJ's investigation-including a global internal investigation concerning bribery and related misconduct-and extensive remediation. Under the non-prosecution and other agreements, we have agreed to cooperate with and report periodically to the DOJ and other governmental authorities concerning our compliance efforts and related matters, and to continue to implement an enhanced compliance program and internal controls designed to prevent and detect FCPA violations. Notwithstanding our settlement of the DOJ and SEC investigations, we may be subject to allegations of FCPA violations in the future, and we may be subject to commercial impacts such as lost revenue from customers who decline to do business with us as a result of these compliance matters. If so, or if we are unable to comply with the provisions of the non-prosecution and other agreements, we may be subject to additional investigation or enforcement by the DOJ or SEC. In such a case, we could be subject to material fines, injunctions on future conduct, the imposition of a compliance monitor, or suffer other criminal or civil penalties or adverse impacts, including being subject to lawsuits brought by private litigants, each of which could have a material adverse effect on our business, financial condition, results of operations and cash flows.
Our failure to satisfy international trade compliance regulations may adversely affect us.
Our global operations require importing and exporting goods and technology across international borders on a regular basis. From time to time, we obtain or receive information alleging improper activity in connection with imports or exports. Our policy mandates strict compliance with U.S. and international trade laws. When we receive information alleging improper

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activity, our policy is to investigate that information and respond appropriately, including, if warranted, reporting our findings to relevant governmental authorities. Nonetheless, we cannot provide assurance that our policies and procedures will always protect us from actions that would violate U.S. and/or foreign laws. Such improper actions could subject the Company to civil or criminal penalties, including material monetary fines, or other adverse actions including denial of import or export privileges, and could damage our reputation and our business prospects.
We are party to asbestos-related product litigation that could adversely affect our financial condition, results of operations and cash flows.
We and certain of our subsidiaries, along with numerous other companies, are named as defendants in personal injury lawsuits based on alleged exposure to asbestos-containing materials. These cases typically involve product liability claims based primarily on allegations of manufacture, sale or distribution of industrial products that either contained asbestos or were attached to or used with asbestos-containing components manufactured by third parties. Each case typically names between dozens to hundreds of corporate defendants. While we have observed an increase in the number of these lawsuits over the past several years, including lawsuits by plaintiffs with mesothelioma-related claims, a large percentage of these suits have not presented viable legal claims and, as a result, have been dismissed by the courts. The Company's historical strategy has been to mount a vigorous defense aimed at having unsubstantiated suits dismissed, and, where appropriate, settling suits before trial. Although a large percentage of litigated suits have been dismissed, we cannot predict the extent to which we will be successful in resolving lawsuits in the future, and we continually assess our strategy for resolving asbestos claims. Unfavorable rulings, judgments or settlement terms could have a material adverse impact on our business, financial condition, results of operations and cash flows.
Due to the number of claims and limited amount of assets at Yarway Corporation (“Yarway”), one of the Company's indirect subsidiaries, Yarway filed a voluntary petition for relief under Chapter 11 of the U.S. Bankruptcy Code in the United States Bankruptcy Court for the District of Delaware. As a result of this filing, all asbestos claims against Yarway have been stayed pending confirmation of a plan of reorganization by the Bankruptcy Court. Yarway’s goal is to negotiate, obtain approval of, and consummate a plan of reorganization that establishes an appropriately funded trust to provide for the fair and equitable payment of legitimate current and future Yarway asbestos claims, accompanied by appropriate injunctive relief permanently protecting Yarway and certain other protected parties from any further asbestos claims arising from products manufactured, sold, and/or distributed by Yarway. However, we cannot assure you that the relief granted by the Bankruptcy Court will be satisfactory to Yarway or its non-debtor affiliates, and a failure to obtain satisfactory relief could have a material adverse impact on our business, financial condition, results of operations and cash flows.
We currently record an estimated liability related to pending claims and claims estimated to be received over the next fifteen years, including related defense costs, based on a number of key assumptions and estimation methodologies. These assumptions are derived from claims experience over the past three years and reflect our expectations about future claim activities over the next fifteen years. These assumptions about the future may or may not prove accurate, and accordingly, we may incur additional liabilities in the future. A change in one or more of the inputs or the methodology that we use to estimate the asbestos liability could materially change the estimated liability and associated cash flows for pending and future claims. Although it is possible that the Company will incur additional costs for asbestos claims filed beyond the next fifteen years, we do not believe there is a reasonable basis for estimating those costs at this time. On a quarterly and annual basis, we perform analyses to review and update as appropriate the underlying assumptions.
We also record an asset that represents our best estimate of probable recoveries from insurers or other responsible parties for the estimated asbestos liabilities. There are significant assumptions made in developing estimates of asbestos-related recoveries, such as policy triggers, policy or contract interpretation, success in litigation in certain cases, the methodology for allocating claims to policies, and the continued solvency of the insurers or other responsible parties. The assumptions underlying the recorded asset may not prove accurate, and as a result, actual performance by our insurers and other responsible parties could result in lower receivables and cash flows expected to reduce our asbestos costs. Due to these uncertainties, as well as our inability to reasonably estimate any additional asbestos liability for claims that may be filed beyond the next fifteen years, it is not possible to predict the ultimate outcome of the cost, nor potential recoveries, of resolving the pending and all unasserted asbestos claims. Additionally, we believe it is possible that the cost of asbestos claims filed beyond the next fifteen years, net of expected recoveries, could have a material adverse effect on our financial position, results of operations or cash flows.
Our operations expose us to the risk of material environmental liabilities, litigation and violations.
We have received notification from the United States Environmental Protection Agency and from other environmental agencies that conditions at several sites where we and others disposed of hazardous substances require cleanup and other possible remedial action and may require that we reimburse the government or otherwise pay for the cost of cleanup of those sites and/or for natural resource damages. We have projects underway at several current and former manufacturing facilities to

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investigate and remediate environmental contamination resulting from past operations by us or by other businesses that previously owned or used the properties. These projects relate to a variety of activities, including:
solvent, oil, metal and other hazardous substance contamination cleanup; and
structure decontamination and demolition, including asbestos abatement.
These projects involve both remediation expenses and capital improvements. In addition, we remain responsible for certain environmental issues at manufacturing locations previously sold by us.
Certain environmental laws assess liability on current or previous owners or operators of real property for the cost of removal or remediation of hazardous substances at their properties or at properties at which they have disposed of hazardous substances. In addition to cleanup actions brought by governmental authorities, private parties could bring personal injury or other claims due to the presence of, or exposure to, hazardous substances.
The ultimate cost of cleanup at disposal sites and manufacturing facilities is difficult to predict given uncertainties regarding the extent of the required cleanup, the interpretation of applicable laws and regulations and alternative cleanup methods. Environmental laws are complex, change frequently and have tended to become more stringent over time. While we have budgeted for future capital and operating expenditures to maintain compliance with such laws, we cannot provide assurance that our costs of complying with current or future 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 materially adversely affect our financial condition, results of operations and cash flows. We may also be subject to material liabilities for additional environmental claims for personal injury or cleanup in the future based on our past, present or future business activities or for existing environmental conditions of which we are not presently aware.
We depend on third-party licenses for our products and services.
We rely on certain software technology that we license from third parties and use in our products and services to perform key functions and provide critical functionality, particularly in our commercial security business. Because our products and services incorporate software developed and maintained by third parties we are, to a certain extent, dependent upon such third parties' ability to maintain or enhance their current products and services, to ensure that their products are free of defects or security vulnerabilities, to develop new products and services on a timely and cost-effective basis, and to respond to emerging industry standards and other technological changes. Further, these third-party technology licenses may not always be available to us on commercially reasonable terms or at all. If our agreements with third-party vendors are not renewed or the third-party software fails to address the needs of our software products and services, we would be required to find alternative software products and services or technologies of equal performance or functionality. We cannot assure that we would be able to replace the functionality provided by third-party software if we lose the license to this software, it becomes obsolete or incompatible with future versions of our products and services or is otherwise not adequately maintained or updated. Furthermore, even if we obtain licenses to alternative software products or services that provide the functionality we need, we may be required to replace hardware installed at our monitoring centers and at our customers' sites, including security system control panels and peripherals, in order to effect our integration of or migration to alternative software products. Any of these factors could materially and adversely affect our business, financial condition, results of operations and cash flows.
Infringement or expiration of our intellectual property rights, or allegations that we have infringed the intellectual property rights of third parties, could negatively affect us.
We rely on a combination of patents, copyrights, trademarks, trade secrets, know-how, confidentiality provisions and licensing arrangements to establish and protect our proprietary rights. We cannot guarantee, however, that the steps we have taken to protect our intellectual property will be adequate to prevent infringement of our rights or misappropriation of our technology, trade secrets or know-how. For example, effective patent, trademark, copyright and trade secret protection may be unavailable or limited in some of the countries in which we operate. In addition, while we generally enter into confidentiality agreements with our employees and third parties to protect our trade secrets, know-how, business strategy and other proprietary information, such confidentiality agreements could be breached or otherwise may not provide meaningful protection for our trade secrets and know-how related to the design, manufacture or operation of our products. If it became necessary for us to resort to litigation to protect our intellectual property rights, any proceedings could be burdensome and costly, and we may not prevail. Further, adequate remedies may not be available in the event of an unauthorized use or disclosure of our trade secrets and manufacturing expertise. Finally, for those products in our portfolio that rely on patent protection, once a patent has expired, the product is generally open to competition. Products under patent protection usually generate significantly higher revenues than those not protected by patents. If we fail to successfully enforce our intellectual property rights, our competitive position could suffer, which could harm our business, financial condition, results of operations and cash flows.
In addition, we are, from time to time, subject to claims of intellectual property infringement by third parties, including practicing entities and non-practicing entities. Regardless of the merit of such claims, responding to infringement claims can

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be expensive and time-consuming, and the litigation process is subject to inherent uncertainties, and we may not prevail in litigation matters regardless of the merits of our position. Intellectual property lawsuits or claims may become extremely disruptive if the plaintiffs succeed in blocking the trade of our products and services and they may have a material adverse effect on our business, financial condition, results of operations and cash flows.
Legislative action by the U.S. Congress could adversely affect us.
Legislative action could be taken by the U.S. Congress which, if ultimately enacted, could override tax treaties, or modify statutes or regulations, upon which we rely, which could materially and adversely affect our effective corporate tax rate. We cannot predict the outcome of any specific legislative proposals. If proposals were enacted that had the effect of disregarding our incorporation in Switzerland or limiting our ability as a Swiss company to take advantage of the tax treaties between Switzerland and the United States, we could be subject to increased taxation.
Police departments could refuse to respond to calls from monitored security service companies.
Police departments in a limited number of U.S. cities do not respond to calls from monitored security service companies, either as a matter of policy or by local ordinance. We have offered affected customers the option of receiving responses from private guard companies, in most cases through contracts with us, which increases the overall cost to customers. If more police departments, whether inside or outside the U.S., were to refuse to respond or be prohibited from responding to calls from monitored security service companies, our ability to attract and retain customers could be negatively impacted and our results of operations and cash flow could be adversely affected.
Risks Related to Our Liquidity and Financial Markets
Disruptions in the financial markets could have adverse effects on us, our customers and our suppliers, by increasing our funding costs or reducing the availability of credit.
In the normal course of our business, we may access credit markets for general corporate purposes, which may include repayment of indebtedness, acquisitions, additions to working capital, repurchase of common shares, capital expenditures and investments in our subsidiaries. Although we believe we have sufficient liquidity to meet our foreseeable needs, our access to and the cost of capital could be negatively impacted by disruptions in the credit markets. In 2009 and 2010, credit markets experienced significant dislocations and liquidity disruptions, and similar disruptions in the credit markets could make financing terms for borrowers unattractive or unavailable. These factors may make it more difficult or expensive for us to access credit markets if the need arises. In addition, these factors may make it more difficult for our suppliers to meet demand for their products or for prospective customers to commence new projects, as customers and suppliers may experience increased costs of debt financing or difficulties in obtaining debt financing. Disruptions in the financial markets have had adverse effects on other areas of the economy and have led to a slowdown in general economic activity that may continue to adversely affect our businesses. These disruptions may have other unknown adverse effects. Based on these conditions, our profitability and our ability to execute our business strategy may be adversely affected.
Covenants in our debt instruments may adversely affect us.
Our bank credit agreements contain customary financial covenants, including a limit on the ratio of debt to earnings before interest, taxes, depreciation, and amortization and limits on incurrence of liens and subsidiary debt. In addition, the indentures governing our bonds contain customary covenants including limits on negative pledges, subsidiary debt and sale-leaseback transactions.
Although we believe none of these covenants are restrictive to our operations, our ability to meet the financial covenants can be affected by events beyond our control, and we cannot provide assurance that we will meet those tests. A breach of any of these covenants could result in a default under our credit agreements or indentures. Upon the occurrence of an event of default under any of our credit facilities or indentures, the lenders or trustees could elect to declare all amounts outstanding thereunder to be immediately due and payable and, in the case of credit facility lenders, terminate all commitments to extend further credit. If the lenders or trustees accelerate the repayment of borrowings, we cannot provide assurance that we will have sufficient assets to repay our credit facilities and our other indebtedness. Furthermore, acceleration of any obligation under any of our material debt instruments will permit the holders of our other material debt to accelerate their obligations, which could have a material adverse affect on our financial condition.
Material adverse legal judgments, fines, penalties or settlements could adversely affect our financial health and prevent us from fulfilling our obligations under our outstanding indebtedness.
We estimate that our available cash, our cash flow from operations and amounts available to us under our credit facilities will be adequate to fund our operations and service our debt for the foreseeable future. However, material adverse legal judgments, fines, penalties or settlements arising from litigation and similar contingencies could require additional funding. If

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such developments require us to obtain additional funding, we cannot provide assurance that we will be able to obtain the additional funding that we need on commercially reasonable terms or at all, which could have a material adverse effect on our financial condition, results of operations or cash flows.
Such an outcome could have important consequences to you. For example, it could:
require us to dedicate a substantial portion of our cash flow from operations to payments on our indebtedness, thereby reducing the availability of our cash flow to fund working capital, capital expenditures, research and development efforts and other corporate purposes, including dividend payments;
increase our vulnerability to adverse economic and industry conditions;
limit our flexibility in planning for, or reacting to, changes in our businesses and the industries in which we operate;
restrict our ability to introduce new technologies or exploit business opportunities;
make it more difficult for us to satisfy our payment obligations with respect to our outstanding indebtedness; and
increase the difficulty and/or cost to us of refinancing our indebtedness.
We may increase our debt or raise additional capital in the future, which could affect our financial health, and may decrease our profitability.
We may increase our debt or raise additional capital in the future, subject to restrictions in our debt agreements. If our cash flow from operations is less than we anticipate, or if our cash requirements are more than we expect, we may require more financing. However, debt or equity financing may not be available to us on terms acceptable to us, if at all. If we incur additional debt or raise equity through the issuance of additional capital stock, the terms of the debt or capital stock issued may give the holders rights, preferences and privileges senior to those of holders of our common stock, particularly in the event of liquidation. The terms of the debt may also impose additional and more stringent restrictions on our operations than we currently have. If we raise funds through the issuance of additional equity, your percentage ownership in us would decline. If we are unable to raise additional capital when needed, it could affect our financial health, which could negatively affect your investment in us.
Risks Relating to Tax Matters
Examinations and audits by tax authorities, including the IRS, could result in additional tax payments for prior periods.
Tyco’s 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 tax adjustments, in particular, with respect to tax years preceding the 2007 Separation. We previously disclosed that in connection with U.S. federal tax audits, the IRS has raised a number of issues and proposed tax adjustments for periods beginning with the 1997 tax year. In particular, we have been unable to resolve with the IRS matters related to the treatment of certain intercompany debt transactions in existence prior to the 2007 Separation. As a result, on June 20, 2013, we received Notices of Deficiency from the IRS asserting that several of our former U.S. subsidiaries owe additional taxes of $883.3 million plus penalties of $154 million based on audits of the 1997 through 2000 tax years of Tyco and its subsidiaries as they existed at that time. In addition, we received Final Partnership Administrative Adjustments for certain U.S. partnerships owned by former U.S. subsidiaries with respect to which an additional tax deficiency of approximately $30 million is expected to be asserted. These amounts exclude interest and do not reflect the impact on subsequent periods if the IRS position described below is ultimately proved correct. In addition, the adjustments proposed by the IRS are subject to the sharing provisions of a tax sharing agreement entered in 2007 with Covidien and TE Connectivity under which Tyco, Covidien and TE Connectivity share 27%, 42% and 31%, respectively, of shared income tax liabilities that arise from adjustments made by tax authorities to Tyco's, Covidien's and TE Connectivity's U.S. and certain non-U.S. income tax returns.
The IRS asserted in the Notices of Deficiency that substantially all of Tyco’s intercompany debt originated during the 1997 - 2000 period should not be treated as debt for U.S. federal income tax purposes, and disallowed interest and related deductions recognized on U.S. income tax returns totaling approximately $2.9 billion. We strongly disagree with the IRS position and have filed petitions with the U.S. Tax Court contesting the IRS proposed adjustments. We believe that we have meritorious defenses for our tax filings, that the IRS positions with regard to these matters is inconsistent with the applicable tax laws and existing Treasury regulations, and that the previously reported taxes for the years in question are appropriate. Furthermore, we believe that Tyco’s income tax reserves and the liabilities recorded in the Consolidated Balance Sheet for the tax sharing arrangements are appropriate. However, the ultimate resolution of these matters, and the impact of that resolution, are uncertain and could have a materially adverse impact on our financial condition, results of operations and cash flows. In particular, if the IRS is successful in asserting its claim, it would have an adverse impact on interest deductions related to the same intercompany debt in subsequent time periods, totaling approximately $6.6 billion, which is expected to be disallowed by the IRS.

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We share responsibility for certain of our, Covidien's and TE Connectivity's income tax liabilities for tax periods prior to and including June 29, 2007.
In connection with the 2007 Separation, Tyco entered into a tax sharing agreement (the "2007 Tax Sharing Agreement") that governs the rights and obligations of each party with respect to certain pre-2007 Separation tax liabilities and certain tax liabilities arising in connection with the 2007 Separation. As noted above, Tyco, Covidien and TE Connectivity share 27%, 42% and 31%, respectively, of income tax liabilities that arise from adjustments made by tax authorities to Tyco's, Covidien's and TE Connectivity's U.S. and certain non-U.S. income tax returns and certain taxes attributable to internal transactions undertaken in anticipation of the 2007 Separation. In the event the 2007 Separation, or certain related transactions, is determined to be taxable as a result of actions taken after the 2007 Separation by Tyco, Covidien, or TE Connectivity, the party responsible for such failure would be responsible for all taxes imposed on Tyco, Covidien, or TE Connectivity as a result thereof. If none of the companies is responsible for such failure, then Tyco, Covidien, and TE Connectivity would be responsible for such taxes in the same manner and in the same proportions as other shared tax liabilities under the 2007 Tax Sharing Agreement. Costs and expenses associated with the management of these shared tax liabilities are generally shared equally among the parties.
If any party to the 2007 Tax Sharing Agreement were to default in its obligation to another party to pay its share of the distribution taxes that arise as a result of no party's fault, each non-defaulting party would be required to pay, equally with any other non-defaulting party, the amounts in default. In addition, if another party to the 2007 Tax Sharing Agreement that is responsible for all or a portion of an income tax liability were to default in its payment of such liability to a taxing authority, we could be legally liable under applicable tax law for such liabilities and required to make additional tax payments. Accordingly, under certain circumstances, we may be obligated to pay amounts in excess of our agreed-upon share of our, Covidien's and TE Connectivity's tax liabilities.
As noted above, with respect to years prior to and including the 2007 Separation, we are litigating certain issues and proposed tax adjustments that the IRS has raised that are generally subject to the sharing provisions of the 2007 Tax Sharing Agreement and which may require Tyco to make a payment to a taxing authority, Covidien or TE Connectivity. Tyco has recorded a liability as of September 27, 2013 which it has assessed and believes is adequate to cover the payments that Tyco may be required to make under the 2007 Tax Sharing Agreement. However, the ultimate resolution of these matters is uncertain and could result in Tyco being responsible for a greater amount than it expects under the 2007 Tax Sharing Agreement.
We share responsibility for certain of our, Pentair's and ADT's income tax liabilities for tax periods prior to and including the Distribution date.
In connection with the Distributions, we entered into the 2012 Tax Sharing Agreement with Pentair and ADT that is separate from the 2007 Tax Sharing Agreement and which governs the rights and obligations of Tyco, ADT and Pentair for certain tax liabilities before the Distributions, including Tyco's obligations under the 2007 Tax Sharing Agreement. Under the 2012 Tax Sharing Agreement Tyco, Pentair and ADT share (i) certain pre-Distribution income tax liabilities that arise from adjustments made by tax authorities to ADT's U.S., Tyco Flow Control's and Tyco's income tax returns, and (ii) payments required to be made by Tyco with respect to the 2007 Tax Sharing Agreement, excluding approximately $175 million of pre-2012 Separation related tax liabilities that were anticipated to be paid prior to the 2012 Separation (collectively, "Shared Tax Liabilities"). Tyco will be responsible for the first $500 million of Shared Tax Liabilities. Pentair and ADT will share 42% and 58%, respectively, of the next $225 million of Shared Tax Liabilities. Tyco, Pentair and ADT will share 52.5% 20% and 27.5%, respectively, of Shared Tax Liabilities above $725 million. All costs and expenses associated with the management of these shared tax liabilities will generally be shared 20%, 27.5%, and 52.5% by Pentair, ADT and Tyco, respectively. As of September 28, 2012, Tyco established liabilities representing the fair market value of its obligations under the 2012 Tax Sharing Arrangement which is recorded in other liabilities in the Company's Consolidated Balance Sheet with an offset to Tyco shareholders' equity. In addition, we entered into a non-income tax sharing agreement with ADT in connection with the ADT Distribution. To the extent we are responsible for any liability under these agreements, there could be a material adverse impact on our financial position, results of operations, cash flows or our effective tax rate in future reporting periods.
The 2012 Tax Sharing Agreement provides that, if any party were to default in its obligation to another party to pay its share of certain taxes that may arise as a result of the failure of the Distributions to be tax free (such taxes, as defined in the 2012 Tax Sharing Agreement, "Distribution Taxes"), each non-defaulting party would be required to pay, equally with any other non-defaulting party, the amounts in default. In addition, if another party to the 2012 Tax Sharing Agreement that is responsible for all or a portion of an income tax liability were to default in its payment of such liability to a taxing authority, we could be legally liable under applicable tax law for such liabilities and required to make additional tax payments. Accordingly, under certain circumstances, we may be obligated to pay amounts in excess of our agreed-upon share of our, Pentair's and ADT's tax liabilities.

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If the Distributions or certain internal transactions undertaken in anticipation of the Distributions are determined to be taxable for U.S. federal income tax purposes, we, our shareholders that are subject to U.S. federal income tax and/or both ADT and Pentair could incur significant U.S. federal income tax liabilities.
Tyco has received a private letter ruling from the IRS regarding the U.S. federal income tax consequences of the Distributions to the effect that, for U.S. federal income tax purposes, the Distributions will qualify as tax-free under Sections 355 and/or 361 of the Code, except for cash received in lieu of a fractional share of ADT common stock or of Pentair common shares. The private letter ruling also provides that certain internal transactions undertaken in anticipation of the Distributions will qualify for favorable treatment under the Code. In addition to obtaining the private letter ruling, Tyco has received an opinion from the law firm of McDermott Will & Emery LLP confirming the tax-free status of the Distributions for U.S. federal income tax purposes. The private letter ruling and the opinion rely on certain facts and assumptions, and certain representations and undertakings, from us, Pentair and ADT regarding the past and future conduct of our respective businesses and other matters.
Notwithstanding the private letter ruling and the opinion, the IRS could determine on audit that the Distributions or the internal transactions should be treated as taxable transactions if it determines that any of these facts, assumptions, representations or undertakings is not correct or has been violated, or that the Distributions or the internal transactions should be taxable for other reasons, including as a result of significant changes in stock ownership (which might take into account changes in Pentair stock ownership resulting from the Merger) or asset ownership after the Distributions. An opinion of counsel represents counsel's best legal judgment, is not binding on the IRS or the courts, and the IRS or the courts may not agree with the opinion. In addition, the opinions will be based on current law, and cannot be relied upon if current law changes with retroactive effect. If the Distributions ultimately are determined to be taxable, the Distributions could be treated as a taxable dividend or capital gain to you for U.S. federal income tax purposes, and you could incur significant U.S. federal income tax liabilities. In addition, we would recognize gain in an amount equal to the excess of the fair market value of the Pentair common shares and the shares of ADT common stock distributed to our shareholders on the distribution date over our tax basis in such common shares, but such gain, if recognized, generally would not be subject to U.S. federal income tax. However, we, Pentair or ADT could incur significant U.S. federal income tax liabilities if it is ultimately determined that certain internal transactions undertaken in anticipation of the Distributions are taxable.
In addition, under the terms of the 2012 Tax Sharing Agreement, in the event the Distributions or the internal transactions were determined to be taxable as a result of actions taken after the Distributions by us, Pentair or ADT, the party responsible for such failure would be responsible for all taxes imposed on us, Pentair or ADT as a result thereof. If such failure is not the result of actions taken after the Distributions by us, Pentair or ADT, then we, Pentair and ADT will share the liability in the manner and according to the sharing percentages set forth in the 2012 Tax Sharing Agreement. Such tax amounts could be significant. In the event that any party to the 2012 Tax Sharing Agreement defaults in its obligation to pay Distribution Taxes to another party that arise as a result of no party's fault, each non-defaulting party would be responsible for an equal amount of the defaulting party's obligation to make a payment to another party in respect of such other party's taxes.
If the Distributions or the Merger are determined to be taxable for Swiss withholding tax purposes, we, ADT and Pentair could incur significant Swiss withholding tax liabilities.
Generally, Swiss withholding tax of 35% is due on dividends and similar distributions to Tyco's shareholders, regardless of the place of residency of the shareholder. As of January 1, 2011, distributions to shareholders out of qualifying contributed surplus accumulated on or after January 1, 1997 are exempt from Swiss withholding tax, if certain conditions are met (Kapitaleinlageprinzip). Tyco has obtained a ruling from the Swiss Federal Tax Administration confirming that the Distributions qualify as payment out of such qualifying contributed surplus and no amount was withheld by Tyco when making the Distributions.
We have obtained tax rulings from the Swiss Tax Administrations confirming that the Merger is a transaction that is generally tax-free for Swiss federal, cantonal, and communal tax purposes (including with respect to Swiss stamp tax and Swiss withholding tax). However, these tax rulings rely on certain facts and assumptions, and certain representations and undertakings, from Tyco. Notwithstanding these tax rulings, the Swiss Federal Tax Administration could determine on audit that the Distributions or the Merger should be treated as a taxable transaction for withholding tax or other tax purposes if it determines that any of these facts, assumptions, representations or undertakings is not correct or has been violated. If the Distributions or the Merger ultimately are determined to be taxable for withholding tax or other tax purposes, Tyco and Tyco shareholders could incur material Swiss withholding tax liabilities that could significantly detract from, or eliminate, the benefits of the Distributions and the Merger. In addition, Tyco could become liable to indemnify Pentair for part of any Swiss withholding tax liabilities to the extent provided under the 2012 Tax Sharing Agreement.

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We might not be able to engage in desirable strategic transactions and equity issuances as a result of the Distributions because of restrictions relating to U.S. federal income tax requirements for tax-free distributions.
Our ability to engage in significant equity transactions could be limited or restricted as a result of the Distributions in order to preserve, for U.S. federal income tax purposes, the tax-free nature of the Distributions. Even if the Distributions otherwise qualify for tax-free treatment under Section 355 of the Code, it may result in corporate-level gain to Tyco and certain of its affiliates under Section 355(e) of the Code if 50% or more, by vote or value, of our shares, Pentair's shares or ADT's shares are acquired or issued as part of a plan or series of related transactions that includes the Distributions. Any acquisitions or issuances of our shares, Pentair's shares or ADT's shares within two years after the Distributions generally will be presumed to be part of such a plan, although we, Pentair or ADT may be able to rebut that presumption.
To preserve the tax-free treatment to us of the Distributions, under the 2012 Tax Sharing Agreement that we entered with Pentair and ADT, we are prohibited from taking or failing to take any action that prevents the Distributions and related transactions from being tax-free. Further, for the two-year period following the Distributions, without obtaining the consent of Pentair and ADT, a private letter ruling from the IRS or an unqualified opinion of a nationally recognized law firm, we may be prohibited from:
approving or allowing any transaction that results in a change in ownership of more than 35% of our common shares when combined with any other changes in ownership of our common shares,
redeeming equity securities,
selling or otherwise disposing of more than 35% of our assets, or
engaging in certain internal transactions.

These restrictions may limit our ability to pursue strategic transactions or engage in new business or other transactions that may maximize the value of our business. Moreover, the 2012 Tax Sharing Agreement also provides that we will be responsible for any taxes imposed on Pentair or any of its affiliates or on ADT or any of its affiliates as a result of the failure of the Distributions or the internal transactions to qualify for favorable treatment under the Code if such failure is attributable to certain actions taken after the Distributions by or in respect of us, any of our affiliates or our shareholders.
Risks Relating to Our Jurisdiction of Incorporation in Switzerland
Changes to Swiss law, in particular significantly heightened risk of criminal penalties for executives and directors, could make it difficult for us to recruit and retain executives and directors.
In March 2013, Swiss voters passed a ballot initiative as a result of which Switzerland’s Federal Constitution was amended. Among other things, this constitutional amendment requires the adoption of legislation that prohibits certain compensation practices in relation to a company’s directors and members of executive management, such as severance compensation, advance compensation and incentive commissions in connection with the sale and purchase of businesses. The constitutional amendment further requires a public company’s board of directors to submit the proposed compensation for directors and members of executive management to a binding shareholder vote. The initial ordinance implementing these requirements is expected to become effective on January 1, 2014. Based on the preliminary draft ordinance made public in June 2013, we expect, among other things, the ordinance to provide for the imprisonment of directors and members of executive management for up to three years if such individuals violate certain provisions of the ordinance. We further believe that certain ordinary course compensation practices and other activities that we view as widely accepted among our peers may no longer be permissible under Swiss law. The draft ordinance further leaves considerable uncertainty as to the legality of certain compensation arrangements for our directors and executives under Swiss law. As a result, our ability to compete for talent with our peer companies, and our board’s ability to fulfill its compensation oversight and executive succession planning duties, may be materially adversely affected.
Additionally, Swiss voters are currently expected to vote on a number of ballot initiatives that may adversely affect the general business climate in Switzerland. Among other things, a ballot initiative, on which Swiss voters are expected to vote in November 2013, generally referred to as the “1:12 Initiative,” would require, if approved, that the highest salary paid by a company to an employee to not be greater than twelve times the lowest salary paid by the same company. If the 1:12 initiative is approved and implemented by legislation, we believe that the ensuing limitations would materially adversely affect our ability to compete with our peer companies incorporated outside Switzerland.
Swiss laws differ from the laws in effect in the United States and may afford less protection to holders of Tyco's securities.
Because of differences between Swiss law and U.S. state and federal laws and differences between the governing documents of Swiss companies and those incorporated in the U.S., it may not be possible to enforce in Switzerland court judgments obtained in the United States against Tyco based on the civil liability provisions of the federal or state securities laws

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of the United States. As a result, in a lawsuit based on the civil liability provisions of the U.S. federal or state securities laws, U.S. investors may find it difficult to:
effect service within the United States upon Tyco or its directors and officers located outside the United States;
enforce judgments obtained against those persons in U.S. courts or in courts in jurisdictions outside the United States; and
enforce against those persons in Switzerland, whether in original actions or in actions for the enforcement of judgments of U.S. courts, civil liabilities based solely upon the U.S. federal or state securities laws.
Original actions against persons in Switzerland based solely upon the U.S. federal or state securities laws are governed, among other things, by the principles set forth in the Swiss Federal Act on International Private Law. This statute provides that the application of provisions of non-Swiss law by the courts in Switzerland shall be precluded if the result was incompatible with Swiss public policy. Also, mandatory provisions of Swiss law may be applicable regardless of any other law that would otherwise apply.
Switzerland and the United States do not have a treaty providing for reciprocal recognition of and enforcement of judgments in civil and commercial matters. The recognition and enforcement of a judgment of the courts of the United States in Switzerland is governed by the principles set forth in the Swiss Federal Act on Private International Law. This statute provides in principle that a judgment rendered by a non-Swiss court may be enforced in Switzerland only if:
the foreign court had jurisdiction pursuant to the Swiss Federal Act on Private International Law;
the judgment of such foreign court has become final and non-appealable;
the judgment does not contravene Swiss public policy;
the court procedures and the service of documents leading to the judgment were in accordance with the due process of law; and
no proceeding involving the same position and the same subject matter was first brought in Switzerland, or adjudicated in Switzerland, or that it was earlier adjudicated in a third state and this decision is recognizable in Switzerland.
Our status as a Swiss corporation may limit our flexibility with respect to certain aspects of capital management and may cause us to be unable to make distributions or repurchase shares without subjecting our shareholders to Swiss withholding tax, or at all.
Swiss law allows our shareholders to authorize share capital that can be issued by the Board of Directors without additional shareholder approval, but this authorization is limited to 50% of the existing registered share capital and must be renewed by the shareholders every two years. Our current authorized share capital will expire on March 6, 2015. Additionally, subject to specified exceptions, Swiss law grants preemptive rights to existing shareholders to subscribe for new issuances of shares. Swiss law also does not provide as much flexibility in the various terms that can attach to different classes of shares as the laws of some other jurisdictions. Swiss law also reserves for approval by shareholders certain corporate actions over which a board of directors would have authority in some other jurisdictions. For example, dividends must be approved by shareholders. These Swiss law requirements relating to our capital management may limit our flexibility, and situations may arise where greater flexibility would have provided substantial benefits to our shareholders.
Under Swiss law, a Swiss corporation may pay dividends only if the corporation has sufficient distributable profits from previous fiscal years, or if the corporation has distributable reserves, each as evidenced by its audited statutory balance sheet. Distributable reserves are generally booked either as "free reserves" or as "contributed surplus" (contributions received from shareholders) in the "reserve from capital contributions." Furthermore, generally, Swiss withholding tax of 35% is due on dividends and similar distributions to our shareholders, regardless of the place of residency of the shareholder, unless the distribution is made to shareholders (i) by way of a reduction of par value or (ii) assuming certain conditions are met, out of qualifying contributed surplus (Kapitaleinlage) accumulated on or after January 1, 1997. Payments may be made out of registered share capital-the aggregate par value of a company's registered shares-only by way of a capital reduction. Tyco's distributable reserves based on its Swiss statutory account for fiscal year 2013 are CHF 25 billion, and its registered share capital is approximately CHF 243 million. Tyco's distributable reserves will be reduced by any additional distributions approved by our shareholders, including any ordinary cash dividends approved by our shareholders at the annual general meeting in March 2014.
If we are not successful in our efforts to make dividends through a reduction of par value or out of qualifying contributed surplus, then any dividends paid by us generally will be subject to a Swiss federal withholding tax. The withholding tax must be withheld from the gross distribution and paid to the Swiss Federal Tax Administration. A U.S. holder that qualifies for benefits under the Convention between the United States of America and the Swiss Confederation for the Avoidance of Double Taxation with Respect to Taxes on Income, which we refer to as the "U.S.-Swiss Treaty," may apply for a refund of the tax

24


withheld in excess of the 15% treaty rate (or in excess of the 5% reduced treaty rate for qualifying corporate shareholders with at least 10% participation in our voting stock, or for a full refund in the case of qualified pension funds). Even if we are able to pay dividends in the future, there can be no assurance that we will meet the requirements to pay such dividends free from Swiss withholding tax or that Swiss withholding rules will not be changed in the future. We cannot provide assurance that the current Swiss law with respect to distributions out of qualifying contributed surplus will not be changed or that a change in Swiss law will not adversely affect us or our shareholders, in particular as a result of distributions out of qualifying contributed surplus becoming subject to additional corporate law or other restrictions. In addition, over the long term, the amount of par value available to us for par value reductions and the amount of qualifying contributed surplus available to us to pay out as distributions is limited.
Under present Swiss tax laws, repurchases of shares for the purposes of cancellation are treated as a partial liquidation subject to 35% Swiss withholding tax on the difference between the repurchase price and the par value except, since January 1, 2011, to the extent attributable to qualifying contributed surplus (Kapitaleinlagereserven) if any. If, and to the extent that, the repurchase of shares is out of retained earnings or other taxable reserves, the Swiss withholding becomes due. No partial liquidation treatment applies, and no withholding tax is triggered, if the shares are not repurchased for cancellation but held by us as treasury shares. However, should such treasury shares remain in treasury for six years, the withholding tax becomes due at the end of the six year period.
Item 1B.    Unresolved Staff Comments
None.
Item 2.    Properties
Our locations include research and development facilities, manufacturing facilities, warehouse and distribution centers, sales and service offices and corporate offices. Additionally, our locations include approximately 30 monitoring call centers located around the world. All of our monitoring facilities operate 24 hours a day on a year-round basis. Incoming alarm signals are routed via an internal communications network to the next available operator. Operators are quickly updated with information including the name and location of the customer and site, and the nature of the alarm signal. Depending upon the type of service specified by the customer contract, operators respond to emergency-related alarms by calling the customer by telephone (for verification purposes) and relaying information to local fire or police departments, as necessary. Additional action may be taken by the operators as needed, depending on the specific situation.
We operate from approximately 1,100 locations in about 50 countries. These properties total approximately 15 million square feet, of which 4 million square feet are owned and 11 million square feet are leased.
NA Installation & Services operates through a network of offices, service and manufacturing facilities and warehouse and distribution centers located in North America. The group occupies approximately 5 million square feet, the majority of which is leased.
ROW Installation & Services operates through a network of offices, service and manufacturing facilities and warehouse and distribution centers located in Central America, South America, Europe, the Middle East, Africa and the Asia-Pacific region. The group occupies approximately 4 million square feet, of which 1 million square feet are owned and 3 million square feet are leased.
Global Products has manufacturing facilities, warehouses and distribution centers throughout North America, Central America, South America, Europe, the Middle East, Africa and the Asia-Pacific region. The group occupies approximately 6 million square feet, of which 2 million square feet are owned and 4 million square feet are leased.
In the opinion of management, our properties and equipment are in good operating condition and are adequate for our present needs. We do not anticipate difficulty in renewing existing leases as they expire or in finding alternative facilities. See Item 7. Management's Discussion and Analysis of financial Condition and Results of Operations and Note 13 to the Consolidated Financial Statements for a description of our operating lease obligations.
Item 3.    Legal Proceedings
The Company is a party to several lawsuits involving disputes with former management, including its former chief executive officer, Mr. L. Dennis Kozlowski, and its former chief financial officer, Mr. Mark Swartz. The Company filed civil complaints against Mr. Kozlowski and Mr. Swartz for breach of fiduciary duty and other wrongful conduct relating to alleged abuses of the Company's Key Employee Loan Program and relocation program, unauthorized bonuses, unauthorized payments, self-dealing transactions and other improper conduct. In connection with Tyco's affirmative actions against Mr. Kozlowski and Mr. Swartz, Mr. Kozlowski, through counterclaims, and Mr. Swartz, through a separate lawsuit, sought an aggregate of

25


approximately $140 million allegedly due in connection with their compensation and retention arrangements and under the Employee Retirement Income Security Act ("ERISA"). A former director, Mr. Frank Walsh Jr. sought indemnification for legal and other expenses incurred by him in connection with the Company's affirmative action against him for breaches of fiduciary duties.
With respect to Mr. Kozlowski, on December 1, 2010, the U.S. District Court for the Southern District of New York ruled in favor of several of the Company's affirmative claims against him before trial, while dismissing all of Mr. Kozlowski's counterclaims for pay and benefits after 1995. Prior to the commencement of trial, the parties reached an agreement in principle to resolve the matter, with Mr. Kozlowski agreeing to release the Company from any claims to monetary amounts related to compensation, retention or other arrangements alleged to have existed between him and the Company. Although the parties have reached an agreement in principle, until the settlement agreement is signed, the Company will continue to maintain the amounts recorded in its Consolidated Balance Sheet, which reflect a net liability of approximately $91 million, for the amounts allegedly due under his compensation and retention arrangements and under ERISA.
With respect to Mr. Swartz, on March 3, 2011, the U.S. District Court for the Southern District of New York granted the Company's motion for summary judgment as to liability for its affirmative actions and further ruled that issues related to damages would need to be resolved at trial. During the second quarter of fiscal 2012, the Company reversed a $50 million liability related to Mr. Swartz's pay and benefits due to the expiration of the statute of limitations, which was recorded in Selling, general and administrative expenses in the Consolidated Statement of Operations. On May 15, 2012, Mr. Swartz filed a lawsuit against Tyco in New York state court claiming entitlement to monies under ERISA. The Company removed the case to the U.S. District Court for the Southern District of New York and filed a motion to dismiss Mr. Swartz's claims for multiple reasons, including that the statute of limitations had expired, at the latest, during the second quarter of fiscal 2012. A trial to determine the Company's damages from Mr. Swartz's breaches of fiduciary duty concluded on October 17, 2012. At the conclusion of the trial, the Court ruled that the Company was entitled to recover all monies earned by Mr. Swartz in connection with his employment by Tyco between September 1, 1995 and June 1, 2002. The Company filed a motion requesting the entry of monetary sum certain judgment in conformity with the Court's ruling regarding the time period of disgorgement. The motion also requested interest related to the monies Mr. Swartz was found to have unlawfully taken from the Company. In March 2013, the Court entered an order awarding the Company's request for interest. In connection with Mr. Swartz's affirmative claims against the Company, the Court dismissed all of Mr. Swartz's claims except one claim in which Mr. Swartz contends he is entitled to reimbursement from the Company for taxes he paid in connection with his 2002 Separation Agreement. In July 2013, the parties reached an agreement in principle to resolve the matter, with Mr. Swartz agreeing to release the Company from any claims to monetary amounts related to compensation, retention or other arrangements alleged to have existed between him and the Company. Although the parties have reached an agreement in principle, a final settlement agreement has not yet been executed.
With respect to Mr. Walsh, in June 2002, the Company filed a civil complaint against him for breach of fiduciary duty, inducing breaches of fiduciary duty and related wrongful conduct involving a $20 million payment by Tyco, $10 million of which was paid to Mr. Walsh with the balance paid to a charity of which Mr. Walsh is trustee. The payment was purportedly made for Mr. Walsh's assistance in arranging the Company's acquisition of The CIT Group, Inc. Separately, Mr. Walsh filed a New York state court claim against the Company asserting his entitlement to indemnification. In March 2013, Mr. Walsh and the Company entered into a settlement agreement resolving all claims they had against each other related to these lawsuits with no payments made by either party.
Environmental Matters
Tyco is involved in various stages of investigation and cleanup related to environmental remediation matters at a number of sites. The ultimate cost of site cleanup is difficult to predict given the uncertainties regarding the extent of the required cleanup, the interpretation of applicable laws and regulations and alternative cleanup methods. As of September 27, 2013, Tyco concluded that it was probable that it would incur remedial costs in the range of approximately $74 million to $162 million. As of September 27, 2013, Tyco concluded that the best estimate within this range is approximately $105 million, of which $82 million is included in Accrued and other current liabilities and Accounts payable and $23 million is included in Other liabilities in the Company's Consolidated Balance Sheet.
The majority of the liabilities described above relate to ongoing remediation efforts at a facility in the Company's Global Products segment located in Marinette, Wisconsin, which the Company acquired in 1990 in connection with its acquisition of, among other things, the Ansul product line. Prior to Tyco's acquisition, Ansul manufactured arsenic-based agricultural herbicides at the Marinette facility, which resulted in significant arsenic contamination of soil and groundwater on the Marinette site and in parts of the adjoining Menominee River. Ansul has been engaged in ongoing remediation efforts at the Marinette site since 1990, and in February 2009 entered into an Administrative Consent Order (the "Consent Order") with the U.S. Environmental Protection Agency to address the presence of arsenic at the Marinette site. Under this agreement, Ansul's principal obligations are to contain the arsenic contamination on the site, pump and treat on-site groundwater, dredge, treat and

26


properly dispose of contaminated sediments in the adjoining river areas, and monitor contamination levels on an ongoing basis. Activities completed under the Consent Order since 2009 include the installation of a subsurface barrier wall around the facility to contain contaminated groundwater, the installation of a groundwater extraction and treatment system and the dredging and offsite disposal of treated river sediment. As a result of treatability studies concluded during the second quarter of fiscal 2013, the Company became aware that additional river sediment beyond what was originally planned would require treatment under the Consent Order for river sediment remediation. This caused the Company to increase its agreed upon remedial activities through the fall of 2013 in order to achieve compliance with the Consent Order. During the first quarter of fiscal 2014, the deadline for completing the remediation was extended through December 31, 2013, and the Company intends to complete the activities required under the Consent Order within the extended timeframe. As a result of the increased level of remediation required, the Company recorded a charge of approximately $100 million in Selling, general and administrative expenses in the Consolidated Statement of Operations during the first half of the year ended September 27, 2013. As of September 27, 2013, the Company concluded that its remaining remediation and monitoring costs related to the Marinette facility were in the range of approximately $62 million to $137 million. The Company's best estimate within that range is approximately $93 million, of which $79 million is included in Accrued and other current liabilities and Accounts payable and $14 million is included in Other liabilities in the Company's Consolidated Balance Sheet. The Company recorded $17 million and $11 million during the years ended September 28, 2012 and September 30, 2011, respectively, within Selling, general and administrative expenses in the Consolidated Statement of Operations. Since fiscal 2009, the year in which the Company received the Consent Order, the Company has incurred environmental remediation costs net of insurance recoveries of $132 million. Although the Company has recorded its best estimate of the costs that it will incur to remediate and monitor the arsenic contamination at the Marinette facility, it is possible that technological, regulatory or enforcement developments, the results of environmental studies or other factors could change the Company's expectations with respect to future charges and cash outlays, and such changes could be material to the Company's future results of operations, financial condition or cash flows.
Asbestos Matters
The Company and certain of its subsidiaries along with numerous other companies are named as defendants in personal injury lawsuits based on alleged exposure to asbestos containing materials. These cases typically involve product liability claims based primarily on allegations of manufacture, sale or distribution of industrial products that either contained asbestos or were attached to or used with asbestos containing components manufactured by third parties. Each case typically names between dozens to hundreds of corporate defendants. While the Company has observed an increase in the number of these lawsuits over the past several years, including lawsuits by plaintiffs with mesothelioma related claims, a large percentage of these suits have not presented viable legal claims and, as a result, have been dismissed by the courts. The Company's historical strategy has been to mount a vigorous defense aimed at having unsubstantiated suits dismissed, and, where appropriate, settling suits before trial. Although a large percentage of litigated suits have been dismissed, the Company cannot predict the extent to which it will be successful in resolving lawsuits in the future. In addition, the Company continues to assess its strategy for resolving asbestos claims. Due to the number of claims and limited amount of assets held by Yarway Corporation ("Yarway"), one of the Company's indirect subsidiaries, on April 22, 2013 Yarway filed a voluntary petition for relief under Chapter 11 of the U.S. Bankruptcy Code in the United States Bankruptcy Court for the District of Delaware. As a result of this filing, all asbestos claims against Yarway have been stayed pending confirmation of a plan of reorganization by the Bankruptcy Court. Yarway's goal is to negotiate, obtain approval of, and consummate a plan of reorganization that establishes an appropriately funded trust to provide for the fair and equitable payment of legitimate current and future Yarway asbestos claims, accompanied by appropriate injunctive relief permanently protecting Yarway and certain other protected parties from any further asbestos claims arising from products manufactured, sold, and/or distributed by Yarway. Upon confirmation of such plan of reorganization, the Company expects to deconsolidate Yarway. As a result of filing the voluntary petition during the year, the Company recorded an expected loss upon deconsolidation of $10 million related to the Yarway bankruptcy petition. Although the terms of Yarway's plan of reorganization are unknown at this time, the Company does not expect them to have a material adverse effect on the Company's results of operations, financial condition or liquidity.
As of September 27, 2013, the Company has determined that there were approximately 5,200 claims pending against it, its subsidiaries or entities for which the Company has assumed responsibility in connection with acquisitions and divestitures. This amount reflects the Company's current estimate of the number of viable claims made against such entities and includes adjustments for claims that are not actively being prosecuted, identify incorrect defendants, are duplicative of other actions or for which the Company is indemnified.
The Company's estimate of its liability and corresponding insurance recovery for pending and future claims and defense costs is based on the Company's historical claim experience, and estimates of the number and resolution cost of potential future claims that may be filed. The Company's legal strategy for resolving claims also impacts these estimates. The Company considers various trends and developments in evaluating the period of time (the look-back period) over which historical claim and settlement experience is used to estimate and value claims reasonably projected to be made in the future during a defined period of time (the look-forward period). On a quarterly basis, the Company assesses the sufficiency of its estimated liability

27


for pending and future claims and defense costs by evaluating actual experience regarding claims filed, settled and dismissed, and amounts paid in settlements. In addition to claims and settlement experience, the Company considers additional quantitative and qualitative factors such as changes in legislation, the legal environment, and the Company's defense strategy. It also evaluates the recoverability of its insurance receivable on a quarterly basis. The Company evaluates all of these factors and determines whether a change in the estimate of its liability for pending and future claims and defense costs or insurance receivable is warranted.
During the third quarter of fiscal 2012, the Company determined that a look-back period of three years was more appropriate than a five year period because the Company had experienced a higher and more consistent level of claims activity and settlement costs in the past three years. The Company also revised its look-forward period from seven years to fifteen years, or 2027. The Company's decision to revise its look-forward period was primarily based on improvements in the consistency of observable data and the Company's more extensive experience with asbestos claims since the look-forward period was originally established in 2005. The revisions to the Company's look-forward and look-back periods were not applied to claims made against Yarway. Excluding these claims, the Company believed it could make a more reliable estimate of pending and future claims beyond seven years. The Company believes valuation of pending claims and future claims to be filed through 2027 produced a reasonable estimate of its asbestos liability, which it recorded in the consolidated financial statements on an undiscounted basis. The effect of the change in the Company's look-back and look-forward periods reduced income from continuing operations before income taxes and net income by approximately $90 million and $55 million, respectively. In addition, the effect of the change increased the Company's basic and diluted loss from continuing operations by $0.12 per share and decreased the Company's basic and diluted net income by $0.12 per share.
The Company's estimate of asbestos related insurance recoveries represents estimated amounts due to the Company for previously paid and settled claims and the probable reimbursements relating to its estimated liability for pending and future claims. In determining the amount of insurance recoverable, the Company considers a number of factors, including available insurance, allocation methodologies, and the solvency and creditworthiness of insurers. During the fourth quarter of fiscal 2012, the Company reached an agreement with one of its primary insurance carriers for asbestos related claims. Under the terms of the settlement, the Company agreed with the insurance carrier to accept a lump sum cash payment of $97 million in respect of certain policies, and has reached a coverage-in-place agreement with the insurance carrier with respect to certain claims. Upon receipt of the payments from the insurance carrier in the first quarter of fiscal 2013, the Company terminated a cost-sharing agreement that it had entered into with an entity that it had acquired a business from several decades ago and as a result, has access to all of the insurance policies and is responsible for all liabilities arising from asbestos claims made against the subsidiary that was acquired.
As of September 27, 2013, the Company's estimated net liability of $169 million was recorded within the Company's Consolidated Balance Sheet as a liability for pending and future claims and related defense costs of $321 million, and separately as an asset for insurance recoveries of $152 million. The Company believes that its asbestos related liabilities and insurance related assets as of September 27, 2013 are appropriate. Similarly, as of September 28, 2012, the Company's estimated net liability of $155 million was recorded within the Company's Consolidated Balance Sheet as a liability for pending and future claims and related defense costs of $401 million, and separately as an asset for insurance recoveries of $246 million.
The net liabilities reflected in the Company's Consolidated Balance Sheet represent the Company's best estimates of probable losses for the look-forward periods described above. It is reasonably possible that losses will be incurred for claims made subsequent to such look-forward periods. However, due to the inherent uncertainty and lack of reliable trend data in predicting losses beyond 2027, the Company is unable to reasonably estimate the amount of losses beyond such date. Accordingly, no accrual has been recorded for any costs which may be incurred for claims which may be made subsequent to 2027. With respect to claims made against Yarway, the Company is unable to reasonably estimate losses beyond what it has accrued because it is uncertain what the impact of Yarway's reorganization plan under Chapter 11 of the Bankruptcy Code will be on the Company. However, the Company does not expect the impact to be materially adverse to its financial condition, results of operations or liquidity.
The amounts recorded by the Company for asbestos-related liabilities and insurance-related assets are based on the Company's strategies for resolving its asbestos claims, currently available information, and a number of estimates and assumptions. Key variables and assumptions include the number and type of new claims that are filed each year, the average cost of resolution of claims, the resolution of coverage issues with insurance carriers, amount of insurance and the solvency risk with respect to the Company's insurance carriers. Many of these factors are closely linked, such that a change in one variable or assumption will impact one or more of the others, and no single variable or assumption predominately influences the determination of the Company's asbestos-related liabilities and insurance-related assets. Furthermore, predictions with respect to these variables are subject to greater uncertainty in the later portion of the projection period. Other factors that may affect the Company's liability and cash payments for asbestos-related matters include uncertainties surrounding the litigation process from jurisdiction to jurisdiction and from case to case, reforms of state or federal tort legislation and the applicability of

28


insurance policies among subsidiaries. As a result, actual liabilities or insurance recoveries could be significantly higher or lower than those recorded if assumptions used in the Company's calculations vary significantly from actual results.
Income Tax Matters
Tyco and its subsidiaries' income tax returns are examined periodically by various tax authorities. In connection with these examinations, tax authorities, including the IRS, have raised issues and proposed tax adjustments, in particular with respect to years preceding the 2007 Separation. The issues and proposed adjustments related to such years are generally subject to the sharing provisions of a tax sharing agreement entered in 2007 with Covidien and TE Connectivity (the "2007 Tax Sharing Agreement") under which Tyco, Covidien and TE Connectivity share 27%, 42% and 31%, respectively, of shared income tax liabilities that arise from adjustments made by tax authorities to Tyco's, Covidien's and TE Connectivity's U.S. and certain non-U.S. income tax returns. The costs and expenses associated with the management of these shared tax liabilities are generally shared equally among the parties. Tyco has previously disclosed that in connection with U.S. federal tax audits, the IRS has raised a number of issues and proposed tax adjustments for periods beginning with the 1997 tax year. Although Tyco has been able to resolve substantially all of the issues and adjustments proposed by the IRS for tax years through 2007, it has not been able to resolve matters related to the treatment of certain intercompany debt transactions during the period. As a result, on June 20, 2013, Tyco received Notices of Deficiency from the IRS asserting that several of Tyco's former U.S. subsidiaries owe additional taxes of $883.3 million plus penalties of $154 million based on audits of the 1997 through 2000 tax years of Tyco and its subsidiaries as they existed at that time. In addition, Tyco received Final Partnership Administrative Adjustments for certain U.S. partnerships owned by former U.S. subsidiaries with respect to which an additional tax deficiency of approximately $30 million is expected to be asserted. These amounts exclude interest and do not reflect the impact on subsequent periods if the IRS position described below is ultimately proved correct.
The IRS asserted in the Notices of Deficiency that substantially all of Tyco's intercompany debt originated during the 1997 - 2000 period should not be treated as debt for U.S. federal income tax purposes, and has disallowed interest and related deductions recognized on U.S. income tax returns totaling approximately $2.9 billion. Tyco strongly disagrees with the IRS position and has filed petitions with the U.S. Tax Court contesting the IRS proposed adjustments. Tyco believes that it has meritorious defenses for its tax filings, that the IRS positions with regard to these matters are inconsistent with the applicable tax laws and existing Treasury regulations, and that the previously reported taxes for the years in question are appropriate.
No payments with respect to these matters would be required until the dispute is definitively resolved, which, based on the experience of other companies, could take several years. Tyco believes that its income tax reserves and the liabilities recorded in the Consolidated Balance Sheet for the tax sharing agreements continue to be appropriate. However, the ultimate resolution of these matters, and the impact of that resolution, are uncertain and could have a material impact on Tyco's financial condition, results of operations and cash flows. In particular, if the IRS is successful in asserting its claim, it would have an adverse impact on interest deductions related to the same intercompany debt in subsequent time periods, totaling approximately $6.6 billion, which is expected to be disallowed by the IRS.
For a detailed discussion of contingencies related to Tyco's income taxes, see Note 6 to the Consolidated Financial Statements.
Compliance Matters
As previously reported in the Company's periodic filings, in the fourth fiscal quarter of 2012, the Company settled with the Department of Justice ("DOJ") and the SEC charges related to alleged improper payments made by the Company's subsidiaries and agents in recent years, and agreed to pay approximately $26 million in fines, disgorgement and prejudgment interest to the DOJ and SEC, which the Company had previously reserved in the fourth quarter of fiscal 2011. The Company paid the DOJ approximately $13 million in the first quarter of fiscal 2013 and paid approximately $13 million to the SEC in the third quarter of fiscal 2013.
Covidien and TE Connectivity agreed, in connection with the 2007 Separation, to cooperate with the Company in its responses regarding these matters, and agreed that liabilities primarily related to the former Healthcare and Electronics businesses of the Company would be assigned to Covidien and TE Connectivity, respectively. As a result, Covidien and TE Connectivity have agreed to contribute approximately $5 million and immaterial amounts, respectively, toward the aforementioned $26 million.
Other Matters
During the third quarter of fiscal 2013, an adverse judgment was entered by the United States District Court for the District of Colorado regarding an insurance claim made on behalf of Sonitrol Corporation, a former subsidiary of the Company, for insurance coverage for damages arising from a burglary and fire occurring at a warehouse monitored by Sonitrol in

29


December 2002. The judgment reversed the District Court's prior finding that Sonitrol's actions were not the type of conduct that was uninsurable based on public policy grounds. As a result, the Company reversed an insurance receivable of $26.5 million within Selling, general and administrative expenses in the Consolidated Statement of Operations during the quarter ended June 28, 2013. The Company is appealing the District Court's ruling to the United States Circuit Court for the Tenth Circuit and will retry the underlying damages action against Sonitrol in Colorado state court.
In addition to the foregoing, the Company is subject to claims and suits, including from time to time, contractual disputes and product and general liability claims, incidental to present and former operations, acquisitions and dispositions. With respect to many of these claims, the Company either self-insures or maintains insurance through third-parties, with varying deductibles. While the ultimate outcome of these matters cannot be predicted with certainty, the Company believes that the resolution of any such proceedings, whether the underlying claims are covered by insurance or not, will not have a material adverse effect on the Company's financial condition, results of operations or cash flows beyond amounts recorded for such matters.
Item 4.    Mine Safety Disclosures
Not applicable.

30


PART 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 as of November 5, 2013 was 22,142.
Tyco common shares are listed and traded on the NYSE under the symbol "TYC." The following table sets forth the high and low closing sales prices of Tyco common shares as reported by the NYSE, and the dividends declared on Tyco common shares, for the quarterly periods presented below.

 
Year Ended September 27, 2013
 
Year Ended September 28, 2012
 
Market Price
Range
 
 
 
Market Price
Range
 
 
 
Dividends Declared
Per Common
Share(1)
 
Dividends Declared
Per Common
Share(1)
Quarter
High
 
Low
 
High
 
Low
 
First
$
29.48

 
$
26.50

 
$
0.15

 
$
47.96

 
$
39.25

 
$
0.25

Second
32.34

 
29.25

 
0.15

 
56.18

 
47.85

 
0.25

Third
34.50

 
30.70

 
0.16

 
57.57

 
50.54

 
0.25

Fourth
35.91

 
32.93

 
0.16

 
57.94

 
50.98

 
0.15

 
 

 
 

 
$
0.62

 
 

 
 

 
$
0.90

_______________________________________________________________________________

(1) 
Dividends proposed by Tyco's Board of Directors are subject to shareholder approval. Shareholders approved an annual cash dividend of $0.64 at the Company's annual general meeting on March 6, 2013, covering quarterly dividend payments from May 2013 through February 2014. Shareholders approved cash dividends of $0.50 (pre-2012 Separation) and $0.30 (reflecting the impact of the 2012 Separation) at the annual meeting held on March 7, 2012 and the special general meeting held on September 17, 2012, respectively, covering quarterly dividend payments through February 2013. Shareholders approved an annual dividend of $1.00 (pre-2012 Separation) at the annual meeting held on and March 9, 2011 covering quarterly dividend payments through February 2012.
Dividend Policy
The Company makes dividend payments from its contributed surplus equity position. These payments are made free of Swiss withholding taxes and are effectively denominated in U.S. dollars. Under Swiss law, the authority to declare dividends is vested in the Company's general meeting of shareholders.
We expect to obtain shareholder approval of the annual dividend amount out of contributed surplus each year at our annual general meeting, and we expect to distribute the approved dividend amount in four quarterly installments, on dates determined by our Board of Directors. The timing, declaration and payment of future dividends to holders of our common shares will depend upon many factors, including our financial condition and results of operations, the capital requirements of our businesses, industry practice and any other relevant factors. Future dividends will be proposed by our Board of Directors and will require shareholder approval.
Performance 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 S&P 500 Industrials Index, assuming investment of $100 on September 28, 2008, including the reinvestment of dividends. The graph shows the cumulative total return as of the fiscal years ended September 25, 2009, September 24, 2010, September 30, 2011, September 28, 2012 and September 27, 2013.


31


Comparison of Cumulative Five Year Total Return

Total Return To Shareholders
(Includes reinvestment of dividends)
 
Annual Return Percentage Years Ended
Company/Index
9/09
 
9/10
 
9/11
 
9/12
 
9/13
Tyco International Ltd. 
(3.58
)
 
16.16

 
8.06

 
40.85

 
26.95

S&P 500 Index
(11.56
)
 
12.23

 
0.49

 
30.20

 
20.06

S&P 500 Industrials Index
(15.18
)
 
20.95

 
(5.28
)
 
29.60

 
29.29


 
9/08
 
9/09
 
9/10
 
9/11
 
9/12
 
9/13
Tyco International Ltd. 
$
100

 
$
96.42

 
$
112.00

 
$
121.03

 
$
170.46

 
$
216.41

S&P 500 Index
100

 
88.44

 
99.25

 
99.73

 
129.85

 
155.90

S&P 500 Industrials Index
100

 
84.82

 
102.59

 
97.18

 
125.94

 
162.84



32


Equity Compensation Plan Information
The following table provides information as of September 27, 2013 with respect to Tyco's common shares issuable under its equity compensation plans:

 
Equity Compensation Plan
Plan Category
Number of
securities to be
issued upon
exercise of
outstanding
options
(a)
 


Weighted-average
exercise price of
outstanding
options
(b)
 
Number of
securities remaining
available for future
issuance under
equity compensation plans
(excluding securities
reflected in column (a))
(c)
Equity compensation plans approved by shareholders:
 
 
 
 
 
2012 Stock and Incentive Plan(1)
6,185,051

 
$
27.27

 
40,017,065

2004 Stock and Incentive Plan(2)
16,503,397

 
20.88

 

LTIP I Plan(3)
11,274

 
 
 

ESPP(4)

 
 
 
2,919,845

 
22,699,722

 
 
 
42,936,910

Equity compensation plans not approved by shareholders:
 
 
 
 
 
Broadview Security Plans(5)
19,526

 
12.00

 

 
19,526

 
 
 

Total
22,719,248

 
 
 
42,936,910


(1) 
The Tyco International Ltd. 2012 Stock and Incentive Plan ("2012 Plan") provides for the award of stock options, restricted stock units, performance share units and other equity and equity-based awards to members of the Board of Directors, officers and non-officer employees. The amount in column (a) consists of:

4,082,050

Shares that may be issued upon the exercise of stock options;
1,245,328

Shares that may be issued upon the vesting of restricted stock units;
855,842

Shares that may be issued upon the vesting of performance share units; and
1,831

Dividend equivalents earned on deferred stock units ("DSU") granted under the Company’s Long Term Incentive Plan ("LTIP I") and its 2004 Stock and Incentive Plan ("2004 Plan").
6,185,051

Total

The amount in column (c) includes the aggregate shares available under the 2012 Plan and includes shares that were subject to awards under the 2004 Plan that were outstanding between October 1, 2012 and September 27, 2013, but which had been forfeited for any reason as of September 27, 2013 (other than by reason of exercise or settlement of the awards).

(2) 
The 2004 Plan provided for the award of stock options, restricted stock units, performance share units and other equity and equity-based awards to members of the Board of Directors, officers and non-officer employees. The amount in column (a) consists of:

13,697,613

Shares that may be issued upon the exercise of stock options;
2,723,799

Shares that may be issued upon the vesting of restricted stock units; and
81,985

DSUs and dividend equivalents earned on DSUs.
16,503,397

Total


33


As of October 1, 2012, the 2004 Plan was effectively terminated and no new awards are permitted to be granted under the 2004 Plan as it was replaced with the 2012 Plan. Shares subject, as of October 1, 2012, to outstanding awards under the 2004 Plan that cease for any reason to be subject to such awards (other than by reason of exercise or settlement of the awards) shall be available under the 2012 Plan.

(3) 
The LTIP I Plan allowed for the grant of stock options and other equity or equity-based grants to members of the Board of Directors, officers and non-officer employees. The amount in column (a) consists entirely of DSUs and dividend equivalents earned on such DSUs. The LTIP I Plan has been effectively terminated and no additional grants may be made under it.

(4) 
Shares available for future issuance under the Tyco Employee Stock Purchase Plan ("ESPP"), which represents the number of remaining shares registered for issuance under this plan. All of the shares delivered to participants under the ESPP were purchased in the open market. The ESPP was suspended indefinitely during the fourth quarter of 2009.

(5) 
In connection with the acquisition of Broadview Security in May 2010, options outstanding under the Brink's Home Security Holdings, Inc. 2008 Equity Incentive Plan and the Brink's Home Security Holdings, Inc. Non-Employee Director's Equity Plan were converted into options to purchase Tyco common shares.

Issuer Purchases of Equity Securities

Period
Total Number of
Shares
Purchased
 
Average
Price Paid
Per Share
 
Total Number of
Shares Purchased as
Part of Publicly
Announced
Plans or Programs
 
Maximum Approximate Dollar
Value of Shares that
May Yet Be Purchased
Under Publicly
Announced
Plans or Programs
6/29/2013 - 7/26/2013
4,701

 
$
35.22

 

 
 
7/27/2013 - 8/30/2013

 

 

 
 
8/31/2013 - 9/27/2013
60

 
33.60

 

 
$
499,945,806

During the fourth quarter of 2013, there were no repurchases of common shares on the New York Stock Exchange as part of the $600 million share repurchase program approved by the Board of Directors in January 2013 ("2013 Share Repurchase Program"). The transactions in the table above represent the acquisition of shares by the Company from certain employees in order to satisfy employee tax withholding requirements in connection with the vesting of restricted shares. The average price paid per share is calculated by dividing the total cash paid for the shares by the total number of shares repurchased. As of September 27, 2013 approximately $500 million remained outstanding under the 2013 Share Repurchase Program.

34


Item 6.    Selected Financial Data
The following table sets forth selected consolidated financial data of Tyco. This data is derived from Tyco's Consolidated Financial Statements for the years ended September 27, 2013, September 28, 2012, September 30, 2011, September 24, 2010 and September 25, 2009, respectively. Tyco has a 52 or 53-week fiscal year that ends on the last Friday in September. Fiscal years 2013, 2012, 2010 and 2009 were all 52-week years, while fiscal 2011 was a 53-week year.
 
2013
 
2012 (2)(3)
 
2011
 
2010
 
2009(4)
Consolidated Statements of Operations Data:
 
 
 
 
 
 
 
 
 
Net revenue
$
10,647

 
$
10,403

 
$
10,557

 
$
11,020

 
$
11,119

Income (loss) from continuing operations attributable to Tyco common shareholders
527

 
(332
)
 
617

 
295

 
(2,719
)
Net income (loss) attributable to Tyco common shareholders(1)
536

 
472

 
1,719

 
1,130

 
(1,807
)
Basic earnings per share attributable to Tyco
 common shareholders:
 
 
 
 
 
 
 
 
 
Income (loss) from continuing operations
1.14

 
(0.72
)
 
1.30

 
0.61

 
(5.74
)
Net income (loss)
1.15

 
1.02

 
3.63

 
2.33

 
(3.82
)
Diluted earnings per share attributable to Tyco common shareholders:
 
 
 
 
 
 
 
 
 
Income (loss) from continuing operations
1.12

 
(0.72
)
 
1.29

 
0.60

 
(5.74
)
Net income (loss)
1.14

 
1.02

 
3.59

 
2.31

 
(3.82
)
Cash dividends per share
0.62

 
0.90

 
0.99

 
0.86

 
0.84

Consolidated Balance Sheet Data (End of Year):
 
 
 
 
 
 
 
 
 
Total assets
$
12,176

 
$
12,365

 
$
26,702

 
$
27,066

 
$
25,520

Long-term debt
1,443

 
1,481

 
4,105

 
3,608

 
3,982

Total Tyco shareholders' equity
5,098

 
4,994

 
14,149

 
14,066

 
12,926

_______________________________________________________________________________

(1) 
Net income (loss) attributable to Tyco common shareholders for the years 2012, 2011, 2010 and 2009 include income from discontinued operations of $804 million, $1,102 million, $835 million and $913 million, respectively, which is primarily related to ADT and Tyco Flow Control.
(2) 
The decrease in total assets and total Tyco shareholders' equity is due to the distribution of our former North American residential security and flow control businesses.
(3) 
The decrease in long-term debt is due to the $2.6 billion redemption of various debt securities in connection with the 2012 Separation. See Note 10 to the Consolidated Financial Statements.
(4) 
Income (loss) from continuing operations attributable to Tyco common shareholders for the year ended September 25, 2009 includes goodwill and intangible asset impairment charges of $2.7 billion, which was recorded during the quarter ended March 27, 2009.

35


Item 7.    Management's Discussion and Analysis of Financial Condition and Results of Operations
Results of Operations
The following discussion and analysis of the Company's financial condition and results of operations 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. The Company's actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors, including but not limited to those under the headings "Risk Factors" and "Forward-Looking Information".
Organization
The Consolidated Financial Statements include the consolidated results of Tyco International Ltd., a company organized under the laws of Switzerland, and its subsidiaries (hereinafter collectively referred to as "we", the "Company" or "Tyco"). The financial statements have been prepared in United States dollars ("USD"), in accordance with accounting principles generally accepted in the United States ("GAAP").
We operate and report financial and operating information in the following three segments:
North America Installation & Services ("NA Installation & Services") designs, sells, installs, services and monitors electronic security systems and fire detection and suppression systems for commercial, industrial, retail, institutional and governmental customers in North America.
Rest of World Installation & Services ("ROW Installation & Services") designs, sells, installs, services and monitors electronic security systems and fire detection and suppression systems for commercial, industrial, retail, residential, small business, institutional and governmental customers in the Rest of World ("ROW") regions.
Global Products designs, manufactures and sells fire protection, security and life safety products, including intrusion security, anti-theft devices, breathing apparatus and access control and video management systems, for commercial, industrial, retail, residential, small business, institutional and governmental customers worldwide, including products installed and serviced by our NA and ROW Installation & Services segments.
We also provide general corporate services to our segments which is reported as a fourth, non-operating segment, Corporate and Other. For the year ended September 30, 2011, Corporate and Other includes the Company's former Electrical and Metal Products business which was divested in the first quarter of 2011. References to the segment data are to the Company's continuing operations.
Business Overview
We are a leading global provider of security products and services, fire detection and suppression products and services and life safety products. We utilize our extensive global footprint of over 1,100 locations, including manufacturing facilities, service and distribution centers, monitoring centers and sales offices, to provide solutions and localized expertise to our global customer base. We provide an extensive range of product and service offerings to over 3 million customers in more than 100 countries through multiple channels. Our revenues are broadly diversified across the United States and Canada (collectively “North America”); Central America and South America (collectively “Latin America”); Europe, the Middle East, and Africa (collectively “EMEA”) and the Asia- Pacific geographic areas. The following chart reflects our fiscal 2013 net revenue by geographic area.

36


Fiscal 2013 Net Revenue by Geographic Area
Our end-use customers, to whom we may sell directly or through wholesalers, distributors, commercial builders or contractors, are also broadly diversified and include:
Commercial customers, including residential and commercial property developers, financial institutions, food service businesses and commercial enterprises;
Industrial customers, including companies in the oil and gas, power generation, mining, petrochemical and other industries;
Retail customers, including international, regional and local consumer outlets, from national chains to specialty stores;
Institutional customers, including a broad range of healthcare facilities, academic institutions, museums and foundations;
Governmental customers, including federal, state and local governments, defense installations, mass transportation networks, public utilities and other government-affiliated entities and applications;
Residential and small business customers outside of North America, including owners of single family homes and local providers of a wide range of goods and services.
As a global business with a varied customer base and an extensive range of products and services, our operations and results are impacted by global, regional and industry specific factors, and by political factors. Our geographic diversity and the diversity in our customer base and our products and services has helped mitigate the impact of any one industry or the economy of any single country on our consolidated operating results, financial condition and cash flows. Due to the global nature of our business and the variety of our customers, products and services, no single factor is predominantly used to forecast Company results. Rather, management monitors a number of factors to develop expectations regarding future results, including the activity of key competitors and customers, order rates for longer lead time projects, and capital expenditure budgets and spending patterns of our customers. We also monitor trends throughout the commercial and residential fire and security markets, including building codes and fire-safety standards. Our commercial installation businesses are impacted by trends in commercial construction starts, while our residential business, which is located outside of North America, is impacted by new housing starts.

37


Recent Transactions
Effective September 28, 2012, Tyco completed the spin-offs of The ADT Corporation ("ADT") and Pentair Ltd. (formerly known as Tyco Flow Control International Ltd. ("Tyco Flow Control")), formerly our North American residential security and flow control businesses, respectively, into separate, publicly traded companies in the form of a distribution to Tyco shareholders. Immediately following the spin-off, Pentair, Inc. was merged with a subsidiary of Tyco Flow Control in a tax-free, all-stock merger ("the Merger"), with Pentair Ltd. ("Pentair") succeeding Pentair Inc. as an independent publicly traded company. The distribution was made on September 28, 2012, to Tyco shareholders of record on September 17, 2012. The distributions, the Merger and related transactions are collectively referred to herein as the "2012 Separation". As a result of the distribution, the operations of Tyco's former flow control and North American residential security businesses are classified as discontinued operations in all periods presented.
As a result of the 2012 Separation, we incurred separation related costs during 2013 including professional services, marketing and information technology related costs, and we expect to continue to incur separation related costs during fiscal 2014. During 2012, we incurred separation related costs including debt refinancing, tax restructuring, professional services, restructuring and impairment charges and employee-related costs. During 2013, the Company incurred pre-tax costs related to the 2012 Separation of $69 million recorded within continuing operations and pre-tax gain of $8 million within discontinued operations. During 2012, the Company incurred pre-tax costs related to the 2012 Separation of $561 million recorded within continuing operations and $278 million within discontinued operations. Costs incurred within continuing operations in fiscal 2012 include a charge of $453 million due to the early extinguishment of debt, as the Company refinanced its long-term debt as a result of the 2012 Separation. During fiscal 2013, the Company paid $165 million in separation costs, all of which is included within continuing operations. During fiscal 2012, the Company paid $186 million in separation costs, $18 million of which is included within continuing operations. During fiscal 2011, the Company incurred pre-tax costs related to the 2012 Separation of $24 million recorded within discontinued operations. See Note 2 to the Consolidated Financial Statements.
Results of Operations
Consolidated financial information is as follows:
 
For the Years Ended
 
 
($ in millions)
September 27, 2013
 
September 28, 2012
 
September 30, 2011
 
 
Net revenue
$
10,647

 
$
10,403

 
$
10,557

 
(1
)
Net revenue growth (decline)
2.3
%
 
(1.5
)%
 
NA

 
 

Organic revenue growth
1.3
%
 
2.4
 %
 
NA

 
 

Operating income
$
809

 
$
685

 
$
982

 
(2
)
Operating margin
7.6
%
 
6.6
 %
 
9.3
%
 
 
Interest income
$
17

 
$
19

 
$
27

 
 

Interest expense
100

 
209

 
240

 
 

Other expense, net
29

 
454

 
5

 
 

Income tax expense
(125
)
 
(348
)
 
(134
)
 
 

Equity loss in earnings of unconsolidated subsidiaries
(48
)
 
(26
)
 
(12
)
 
 

Income (loss) from continuing operations attributable to Tyco common shareholders
527

 
(332
)
 
617

 
 
_______________________________________________________________________________

(1)
Net revenue includes $347 million for 2011 related to the Company's former Electrical and Metal Products business which was sold during the first quarter of fiscal 2011.
(2)
Operating income includes $7 million for 2011 related to the Company's former Electrical and Metal Products business, which was sold during the first quarter of fiscal 2011. Additionally, operating income for 2011 includes a $248 million net gain on that sale.
Net Revenue:
Fiscal 2013
Net revenue for the year ended September 27, 2013 increased by $244 million, or 2.3%, to $10,647 million as compared to net revenue of $10,403 million for the year ended September 28, 2012. On an organic basis, net revenue grew by $130

38


million, or 1.3%, year over year, primarily as a result of revenue growth in our Global Products segment and to a lesser extent in our ROW Installation & Services segment, partially offset by a decline in our NA Installation & Services segment driven by our security business. Net revenue was favorably impacted by acquisitions of $168 million, or 1.6%, primarily within our ROW Installation & Services and Global Products segments. Changes in foreign currency exchange rates, primarily in our ROW Installation & Services segment, unfavorably impacted net revenue by $55 million, or 0.5%. Net revenue growth was also unfavorably impacted by divestitures of $38 million, or 0.4%, primarily in our NA and ROW Installation & Services segments.
Fiscal 2012
Net revenue for the year ended September 28, 2012 decreased by $154 million, or 1.5%, to $10,403 million as compared to net revenue of $10,557 million for the year ended September 30, 2011. On an organic basis, net revenue grew by $247 million, or 2.4% year over year, primarily driven by our Global Products segment. Net revenue was unfavorably impacted by the net impact of acquisitions and divestitures of $71 million, or 0.7%, primarily due to the sale of a majority interest the Company's former Electrical and Metal Products business, which contributed $347 million of net revenue during the year ended September 30, 2011, partially offset by the acquisitions of Chemguard and Visonic within the Company's Global Products segment. Unfavorable changes in foreign currency exchange rates impacted net revenue by $226 million, or 2.1%. In addition, because the Company's fiscal year ends on the last Friday in September, fiscal 2012 consisted of 52 weeks as compared to 53 weeks in fiscal 2011. As a result, fiscal year 2011 includes an estimated $98 million of revenue from the additional week.
Operating Income:
Operating income for the year ended September 27, 2013 increased $124 million, or 18.1%, to $809 million, as compared to operating income of $685 million for the year ended September 28, 2012. Operating income for the year ended September 27, 2013 was favorably impacted by our net revenue growth, a smaller corporate footprint as a result of the 2012 Separation, as well as a higher mix of service revenue and operational improvements across all of our businesses. Operating income for the year ended September 27, 2013 was also favorably impacted by a $99 million decline in net asbestos charges. Operating income for the year ended September 27, 2013 was unfavorably impacted by an $83 million increase in environmental remediation charges as well as an increase in restructuring and repositioning charges. Operating income for the year ended September 27, 2013 was also unfavorably impacted by a charge of $27 million resulting from the write-off of an insurance receivable that had been established in respect of a legacy claim. See Note 13 to our Consolidated Financial Statements for further information on our asbestos, environmental and legacy legal matters.
Operating income for the year ended September 28, 2012 decreased $297 million, or 30.2%, to $685 million, as compared to operating income of $982 million for the year ended September 30, 2011. Operating income for the year ended September 28, 2012 declined primarily due to the net gain on divestitures of $224 million that was recognized in the prior year, primarily related to a $248 million net gain related to the sale of a majority interest in the Company's former Electrical and Metal products business.
Items impacting operating income for fiscal 2013, 2012 and 2011 are as follows:
 
For the Years Ended
 
 
($ in millions)
September 27, 2013
 
September 28, 2012
 
September 30, 2011
 
 
Restructuring, repositioning and asset impairment charges
$
134

 
$
104

 
$
78

 
 
Environmental remediation costs - Marinette
100

 
17

 
11

 
 
Asbestos related charges
12

 
111

 
10

 
 
Loss (gain) on divestitures
20

 
14

 
(224
)
 
(1
)
Separation costs
69

 
75

 

 
 
Legacy legal charges
27

 
46

 
20

 
 
Former management compensation reversal

 
(50
)
 

 
 
Acquisition and integration costs
4

 
9

 
5

 
 
Notes receivable write-off

 

 
5

 
 
_______________________________________________________________________________

(1)
Includes a $248 million net gain on the divestiture of a majority interest in the Electrical and Metal Products business.


39


We continue to identify and pursue opportunities for cost savings through restructuring activities and workforce reductions to improve operating efficiencies across our businesses. Additionally, we initiated certain global actions during fiscal 2013 designed to reduce our cost structure and improve future profitability by streamlining operations and better aligning functions, which we refer to as repositioning actions. The Company expects to incur approximately $75 million to $100 million of restructuring and repositioning charges in fiscal 2014. See Note 4 to the Consolidated Financial Statements.
Income (loss) from continuing operations attributable to Tyco common shareholders:
Interest Income and Expense
Interest income was $17 million in 2013, as compared to $19 million and $27 million in 2012 and 2011, respectively. Interest income decreased in 2013 primarily due to decreased investment yields compared to 2012 and 2011.
Interest expense was $100 million in 2013, as compared to $209 million and $240 million in 2012 and 2011, respectively. The weighted-average interest rate on total debt outstanding was 6.5% as of both September 27, 2013 and September 28, 2012 and 5.9% as of September 30, 2011. The decreases in interest expense and fluctuations in the weighted-average interest rate are primarily related to savings realized from the $2.6 billion debt redemptions in 2012 and from the replacement of higher coupon notes with lower coupon notes during 2011. See Note 10 to the Consolidated Financial Statements.
Other Expense, Net
Other expense, net was $29 million in 2013, as compared to $454 million and $5 million in 2012 and 2011, respectively. Other expense, net decreased in 2013 due to the loss on extinguishment of debt of $453 million that was recorded during 2012.
Effective Income Tax Rate
Our effective income tax rate was 17.9% during the year ended September 27, 2013. Our effective tax rate is affected by the mix of jurisdictions in which income is earned. Our effective tax rate for the year was favorably impacted by the impact on taxes of the environmental remediation charges incurred during the second quarter of 2013, partially offset by Tax Sharing Agreement adjustments incurred throughout the year and enacted tax law changes in the fourth quarter of 2013.
Our effective income tax rate for the year ended September 28, 2012 was not meaningful primarily as a result of separation related charges which were incurred for which no tax benefit was recognized, as well as a valuation allowance of $235 million recorded due to net operating loss carryforwards which we do not expect to realize in future periods. Additionally, our effective income tax rate for the year ended September 28, 2012 was impacted by enacted tax law changes, favorable audit resolutions in multiple jurisdictions and a non-recurring item generating a tax benefit.
Our effective income tax rate was 17.5% during the year ended September 30, 2011. The effective income tax rate was impacted by a tax charge recorded in conjunction with the sale of a majority interest in our Electrical and Metal Products business during the first quarter of 2011. The effective income tax rate was positively impacted by favorable audit resolutions in multiple jurisdictions during 2011.
The rate can vary from period to period due to discrete items such as the settlement of income tax audits and changes in tax laws, as well as recurring factors, such as the geographic mix of income before taxes.
The valuation allowance for deferred tax assets of $2.0 billion and $1.8 billion as of September 27, 2013 and September 28, 2012, respectively, relates principally to the uncertainty of the utilization of certain deferred tax assets, primarily tax loss and credit carryforwards in various jurisdictions. Specifically, the valuation allowance as of September 27, 2013 and September 28,2012 includes separation related charges associated with the early extinguishment of debt which further increased a net operating loss carryforward which the Company does not expect to realize in future periods. The valuation allowance was calculated and recorded when the Company determined that it was more-likely-than-not that all or a portion of our deferred tax assets would not be realized. The Company believes that it will generate sufficient future taxable income to realize the tax benefits related to the remaining net deferred tax assets on the Company's Consolidated Balance Sheets.
The calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax regulations in a multitude of jurisdictions across our global operations. We record tax liabilities for anticipated tax audit issues in the U.S. and other tax jurisdictions based on our estimate of whether, and the extent to which, additional taxes will be due. These tax liabilities are reflected net of related tax loss carryforwards. We adjust these liabilities in light of changing facts and circumstances; however, due to the complexity of some of these uncertainties, the ultimate resolution may result in a payment that is materially different from our current estimate of the tax liabilities. Substantially all of these potential tax liabilities are recorded in other liabilities in the Consolidated Balance Sheets as payment is not expected within one year.

40


Equity Loss in Earnings of Unconsolidated Subsidiaries
Equity loss in earnings of unconsolidated subsidiaries in 2013, 2012 and 2011 reflects our share of Atkore International Group Inc.'s ("Atkore") net loss which is accounted for under the equity method of accounting. Included in Equity loss in earnings of unconsolidated subsidiaries for the year ended September 27, 2013 is a $21 million charge reflecting our share of asset impairment charges recorded by Atkore, primarily related to its impairment of long lived assets in Brazil.
Key items impacting income (loss) from continuing operations attributable to Tyco common shareholders for fiscal 2013, 2012 and 2011 are as follows:
 
For the Years Ended
($ in millions)
September 27, 2013
 
September 28, 2012
 
September 30, 2011
Loss on extinguishment of debt (see Note 10 to the Consolidated Financial Statements)
$

 
$
453

 
$

2012 Tax Sharing Agreement loss (see Note 6 to the Consolidated Financial Statements)
32

 

 

Tyco share of Atkore impairment
21

 

 


Segment Results
The following chart reflects our net revenue by operating segment, as well as the percent of net revenue by operating segment, for fiscal 2013, 2012 and 2011, respectively.
The above chart does not include net revenue related to the Company's former Electrical and Metal Products business which was divested in the first quarter of fiscal 2011, which has been included within Corporate & Other. In 2011, this represents $347 million or 3.3% of net revenue.
The segment discussions that follow describe the significant factors contributing to the changes in results for each of our segments included in continuing operations.

41


NA Installation & Services
NA Installation & Services designs, sells, installs, services and monitors electronic security systems and fire detection and suppression systems for commercial, industrial, retail, institutional and governmental customers in North America.
Financial information for NA Installation & Services for the years ended September 27, 2013, September 28, 2012 and September 30, 2011 were as follows:
 
For the Years Ended
($ in millions)
September 27, 2013
 
September 28, 2012
 
September 30, 2011
Net revenue
$
3,891

 
$
3,962

 
$
4,022

Net revenue decline
(1.8
)%
 
(1.5
)%
 
NA

Organic revenue decline
(1.1
)%
 
(0.3
)%
 
NA

Operating income
$
388

 
$
374

 
$
425

Operating margin
10.0
 %
 
9.4
 %
 
10.6
%
The change in net revenue compared to the prior periods is attributable to the following:
Factors Contributing to Year-Over-Year Change
Fiscal 2013
Compared to
Fiscal 2012
 
Fiscal 2012
Compared to
Fiscal 2011
Organic revenue decline
$
(45
)
 
$
(12
)
Acquisitions
7

 
4

Divestitures
(28
)
 

Impact of foreign currency
(3
)
 
(10
)
Other
(2
)
 
(42
)
Total change
$
(71
)
 
$
(60
)
Net revenue decreased $71 million, or 1.8%, to $3,891 million for the year ended September 27, 2013 as compared to $3,962 million for the year ended September 28, 2012. Organic revenue decline for the year ended September 27, 2013 was primarily driven by a decline in revenue in the North America security business as a result of the non-residential construction market and project selectivity, partially offset by increased service revenue growth in our North America fire business. Net revenue was unfavorably impacted by $28 million, or 0.7%, primarily due to the divestiture of our North America guarding business in the third quarter of fiscal 2013.
Net revenue decreased $60 million, or 1.5%, to $3,962 million for the year ended September 28, 2012 as compared to $4,022 million for the year ended September 30, 2011. Organic revenue decline for the year ended September 28, 2012 was driven by slow non-residential market growth as well as installation project selectivity in the North America security business, partially offset by increased service revenue. Net revenue for the year ended September 28, 2012 was impacted by the 53rd week of revenue during fiscal 2011, which is included within Other above.
Operating Income
Operating income for the year ended September 27, 2013 increased $14 million, or 3.7%, to $388 million, as compared to operating income of $374 million for the year ended September 28, 2012. Operating income for the year ended September 27, 2013 increased due to a higher mix of service revenue and efficiencies gained through improved installation execution and project selectivity in the North America security business. Additionally, the year ended September 28, 2012 included a charge of $29 million for the settlement of an ERISA partial withdrawal liability assessment. These items were partially offset by unfavorable impacts due to separation costs as well as dis-synergy costs related to the 2012 separation.
Operating income for the year ended September 28, 2012 decreased $51 million, or 12.0%, to $374 million, as compared to operating income of $425 million for the year ended September 30, 2011. Operating income for the year ended September 28, 2012 declined due to restructuring and asset impairment charges related to organizational realignment.

42


Key items impacting operating income for fiscal 2013, 2012 and 2011 are as follows:
 
For the Years Ended
($ in millions)
September 27, 2013
 
September 28, 2012
 
September 30, 2011
Separation costs
$
49

 
$
2

 
$

Restructuring, repositioning and asset impairment charges, net
36

 
45

 
7

Legacy legal charges

 
29

 

ROW Installation & Services:
ROW Installation & Services designs, sells, installs, services and monitors electronic security systems and fire detection and suppression systems for commercial, industrial, retail, residential, small business, institutional and governmental customers in our Continental Europe, United Kingdom, Asia, Pacific and Growth Markets regions, which are collectively our ROW regions.
Financial information for ROW Installation & Services for the years ended September 27, 2013, September 28, 2012 and September 30, 2011 were as follows:
 
For the Years Ended
($ in millions)
September 27, 2013
 
September 28, 2012
 
September 30, 2011
Net revenue
4,417

 
$
4,341

 
$
4,434

Net revenue growth (decline)
1.8
%
 
(2.1
)%
 
NA

Organic revenue growth
1.0
%
 
1.9
 %
 
NA

Operating income
$
433

 
$
456

 
$
405

Operating margin
9.8
%
 
10.5
 %
 
9.1
%
The change in net revenue compared to the prior periods is attributable to the following:
Factors Contributing to Year-Over-Year Change
Fiscal 2013
Compared to
Fiscal 2012
 
Fiscal 2012
Compared to
Fiscal 2011
Organic revenue growth
$
42

 
$
81

Acquisitions
93

 
105

Divestitures
(10
)
 
(54
)
Impact of foreign currency
(49
)
 
(178
)
Other

 
(47
)
Total change
$
76

 
$
(93
)
Net revenue increased $76 million, or 1.8%, to $4,417 million for the year ended September 27, 2013 as compared to $4,341 million for the year ended September 28, 2012. Organic revenue growth for the year ended September 27, 2013 was driven by service revenue growth in Growth Markets, Asia and Continental Europe, partially offset by a decline in our Pacific region. The growth in service revenue was partially offset by a decrease in installation revenue, driven by declines in Continental Europe and the United Kingdom offset by an increase in Growth Markets. Net revenue was favorably impacted by the impact of acquisitions of $93 million, or 2.1%, primarily due to the acquisitions within the United Kingdom and our Pacific regions during fiscal 2013 as well as acquisitions in Asia during fiscal 2012. Net revenue was unfavorably impacted by the impact of divestitures of $10 million, or 0.2%. Changes in foreign currency exchanges rates unfavorably impacted net revenue by $49 million, or 1.1%.
Net revenue decreased $93 million, or 2.1%, to $4,341 million for the year ended September 28, 2012 as compared to $4,434 million for the year ended September 30, 2011. Organic revenue growth for the year ended September 28, 2012 was driven by increased revenue in Asia and Growth Markets, partially offset by continued softness in Continental Europe and the United Kingdom. Net revenue for the year ended September 28, 2012 was impacted by the 53rd week of revenue during fiscal 2011, which is included within Other above.

43


Operating Income
Operating income for the year ended September 27, 2013 decreased $23 million, or 5.0%, to $433 million, as compared to operating income of $456 million for the year ended September 28, 2012. Operating income for the year ended September 27, 2013 decreased primarily due to an increase in restructuring charges and loss on divestitures, partially offset by our continued focus on increasing higher margin service revenue, as well as the benefit of ongoing cost saving initiatives.
Operating income for the year ended September 28, 2012 increased $51 million, or 12.6%, to $456 million, as compared to operating income of $405 million for the year ended September 30, 2011. Operating income for the year ended September 28, 2012 improved primarily due to increased price focus on higher margin products and services, as well as the benefit of ongoing cost containment and restructuring savings in most regions.
Key items impacting operating income for fiscal 2013, 2012 and 2011 are as follows:
 
For the Years Ended
($ in millions)
September 27, 2013
 
September 28, 2012
 
September 30, 2011
Restructuring, repositioning and asset impairment charges, net
$
67

 
$
36

 
$
64

Loss on divestitures
14

 
7

 
29

Acquisition and integration costs
2

 
4

 
4

Global Products:
Global Products designs, manufactures and sells fire protection, security and life safety products, including intrusion security, anti-theft devices, breathing apparatus and access control and video management systems, for commercial, industrial, retail, residential, small business, institutional and governmental customers worldwide, including products installed and serviced by our NA and ROW Installation & Services segments.
Financial information for Global Products for the years ended September 27, 2013, September 28, 2012 and September 30, 2011 were as follows:
 
For the Years Ended
($ in millions)
September 27, 2013
 
September 28, 2012
 
September 30, 2011
Net revenue
$
2,339

 
$
2,100

 
$
1,754

Net revenue growth
11.4
%
 
19.7
%
 
NA

Organic revenue growth
6.3
%
 
10.1
%
 
NA

Operating income
$
307

 
$
353

 
$
295

Operating margin
13.1
%
 
16.8
%
 
16.8
%
The change in net revenue compared to the prior periods is attributable to the following:
Factors Contributing to Year-Over-Year Change
Fiscal 2013
Compared to
Fiscal 2012
 
Fiscal 2012
Compared to
Fiscal 2011
Organic revenue growth
$
133

 
$
178

Acquisitions
68

 
221

Impact of foreign currency
(3
)
 
(38
)
Other
41

 
(15
)
Total change
$
239

 
$
346

Net revenue increased $239 million, or 11.4%, to $2,339 million for the year ended September 27, 2013 as compared to $2,100 million for the year ended September 28, 2012. Organic revenue growth for the year ended September 27, 2013 was driven by growth across all three of our product platforms. Net revenue was favorably impacted by acquisitions of $68 million, or 3.2%, primarily due to acquisitions within our fire and security products businesses during fiscal 2013 and 2012. Net revenue was also favorably impacted by contractual revenue from ADT under the 2012 Separation and Distribution Agreement of $39 million or 1.9%, included within Other above.
Net revenue increased $346 million, or 19.7%, to $2,100 million for the year ended September 28, 2012 as compared to $1,754 million for the year ended September 30, 2011. Organic revenue growth for the year ended September 28, 2012 was

44


driven by continued growth from existing product lines, expansion in key verticals and introduction of new products. Net revenue for the year ended September 28, 2012 was impacted by the 53rd week of revenue during fiscal 2011 included within Other above.
Operating Income
Operating income for the year ended September 27, 2013 decreased $46 million, or 13.0%, to $307 million, as compared to operating income of $353 million for the year ended September 28, 2012. Operating income for the year ended September 27, 2013 was unfavorably impacted by charges of $100 million recorded in the first half of fiscal 2013 for additional environmental remediation activities planned for a facility located in Marinette, Wisconsin. See Note 13 to our Consolidated Financial Statements for further information. Our operating income for the year ended September 27, 2013 was favorably impacted by net revenue growth and operational improvements partially offset by additional investments in research and development and sales and marketing costs.
Operating income for the year ended September 28, 2012 increased $58 million, or 19.7%, to $353 million, as compared to operating income of $295 million for the year ended September 30, 2011. Operating income for the year ended September 28, 2012 improved primarily due to increased volume, price discipline to offset commodity inflationary pressures, integration of acquisitions, the benefit of continued investment in research and development and the benefit of ongoing cost containment and restructuring savings. These benefits were partially offset by additional environmental remediation costs.
Key items impacting operating income for fiscal 2013, 2012 and 2011 are as follows:
 
For the Years Ended
($ in millions)
September 27, 2013
 
September 28, 2012
 
September 30, 2011
Environmental remediation costs - Marinette
$
100

 
$
17

 
$
11

Restructuring, repositioning and asset impairment charges, net
12

 
10

 
(7
)
Acquisition and integration costs
2

 
4

 
1

Corporate and Other
Corporate expense decreased $179 million, or 35.9%, to $319 million for the year ended September 27, 2013 as compared to $498 million for the year ended September 28, 2012. The decrease in Corporate expense for the year ended September 27, 2013 was primarily due to a smaller corporate footprint as a result of the 2012 Separation as well as lower separation costs. Corporate expense also decreased due to a decline in net asbestos charges to $12 million in the year ended September 27, 2013 from $111 million in the prior year period. The net asbestos charges for the year ended September 27, 2013 primarily relate to the Yarway Corporation, one of the Company's indirect subsidiaries, which filed for bankruptcy protection during the third quarter of fiscal 2013. The net asbestos charges during the year ended September 28, 2012 were primarily due to the Company revising its look-back period for historical claim experience for the past five years to the past three years, as well as its look-forward period related to the projection of future claims from seven years to fifteen years. The decreases in Corporate expense were partially offset by a charge of $27 million resulting from the write-off of an insurance receivable that had been established in respect of a legacy claim as well as a net benefit in the prior year period of approximately $33 million, primarily resulting from the reversal of a compensation reserve established in respect of legacy litigation with former management. See Note 13 to the Consolidated Financial Statements for additional information related to our asbestos and legacy legal matters.
Corporate expense increased $355 million, or 248.3%, to $498 million for the year ended September 28, 2012 as compared to an expense of $143 million for the year ended September 30, 2011. The increase in corporate expense was primarily due to the net gain on divestiture of $253 million during the year ended September 30, 2011 as a result of the divestiture of a majority interest in the Company's former Electrical and Metal Products business in fiscal 2011. Corporate expense was favorably impacted by cost containment initiatives during the year ended September 28, 2012.

45


Key items included in corporate expense for fiscal 2013, 2012 and 2011 are as follows:
 
For the Years Ended
($ in millions)
September 27, 2013
 
September 28, 2012
 
September 30, 2011
Legacy legal charges
$
27

 
$
17

 
$
20

Separation costs
20

 
70

 

Restructuring, repositioning and asset impairment charges
19

 
13

 
14

Asbestos related charges
12

 
111

 
10

Loss (gain) on divestitures
5

 
7

 
(253
)
Former management compensation reversal

 
(50
)
 

Notes receivable write-off

 

 
5

Critical Accounting Policies and Estimates
The preparation of the Consolidated Financial Statements in conformity with U.S. GAAP requires management to use judgment in making estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities and the reported amounts of revenue and expenses. The following accounting policies are based on, among other things, judgments and assumptions made by management that include inherent risks and uncertainties. Management's estimates are based on the relevant information available at the end of each period.
Depreciation and Amortization Methods for Security Monitoring-Related Assets—Tyco considers assets related to the acquisition of new customers in its electronic security business in three asset categories: internally generated residential subscriber systems outside of North America, internally generated commercial subscriber systems (collectively referred to as subscriber system assets) and customer accounts acquired through the ADT dealer program primarily outside of North America (referred to as dealer intangibles). Subscriber system assets 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 of the subscriber. In certain geographical areas where the Company has a large number of customers that behave in a similar manner over time, the Company accounts for subscriber system assets and related deferred revenue using pools, with separate pools for the components of subscriber system assets and any related deferred revenue based on the month and year of acquisition. The Company depreciates its pooled subscriber system assets and related deferred revenue using an accelerated method with lives up to 15 years. The accelerated method utilizes declining balance rates based on geographical area ranging from 135% to 360% for commercial subscriber pools and dealer intangibles and converts to a straight line methodology when the resulting depreciation charge is greater than that from the accelerated method. The Company uses a straight-line method with a 14-year life for non-pooled subscriber system assets (primarily in Europe, Latin America and Asia) and related deferred revenue, with remaining balances written off upon customer termination.
Revenue Recognition—Contract sales for the installation of fire protection systems, large security intruder systems and other construction-related projects are recorded primarily under the percentage-of-completion method. Profits recognized on contracts in process are based upon estimated contract revenue and related total cost of the project at completion. The risk of this methodology is its dependence upon estimates of costs at completion, which are subject to the uncertainties inherent in long-term contracts. Provisions for anticipated losses are made in the period in which they become determinable.
Sales of security monitoring systems may have multiple elements, including equipment, installation, monitoring services and maintenance agreements. We assess our revenue arrangements to determine the appropriate units of accounting. When ownership of the system is transferred to the customer, each deliverable provided under the arrangement is considered a separate unit of accounting. Revenues associated with sale of equipment and related installations are recognized once delivery, installation and customer acceptance is completed, while the revenue for monitoring and maintenance services are recognized as services are rendered. Amounts assigned to each unit of accounting are based on an allocation of total arrangement consideration using a hierarchy of estimated selling price for the deliverables. The selling price used for each deliverable will be based on Vendor Specific Objective Evidence ("VSOE") if available, Third Party Evidence ("TPE") if VSOE is not available, or estimated selling price if neither VSOE or TPE is available. Revenue recognized for equipment and installation is limited to the lesser of their allocated amounts under the estimated selling price hierarchy or the non-contingent up-front consideration received at the time of installation, since collection of future amounts under the arrangement with the customer is contingent upon the delivery of monitoring and maintenance services.

46


Product discounts granted are based on the terms of arrangements with direct, indirect and other market participants. Rebates are estimated based on sales terms, historical experience and trend analysis.
Loss Contingencies—Accruals are recorded for various contingencies including legal proceedings, self-insurance and other claims that arise in the normal course of business. The accruals are based on judgment, the probability of losses and, where applicable, the consideration of opinions of internal and/or external legal counsel and actuarially determined estimates. Additionally, the Company records receivables from third party insurers when recovery has been determined to be probable.
Asbestos-Related Contingencies and Insurance Receivables—We and certain of our subsidiaries along with numerous other companies are named as defendants in personal injury lawsuits based on alleged exposure to asbestos-containing materials. We estimate the liability and corresponding insurance recovery for pending and future claims and defense costs based on the Company's historical claim experience, and estimates of the number and resolution cost of potential future claims that may be filed. The Company's legal strategy for resolving claims also impacts these estimates. The Company considers various trends and developments in evaluating the period of time (the look-back period) over which historical claim and settlement experience is used to estimate and value claims reasonably projected to be made in the future during a defined period of time (the look-forward period). On a quarterly basis, the Company assesses the sufficiency of its estimated liability for pending and future claims and defense costs by evaluating actual experience regarding claims filed, settled and dismissed, and amounts paid in settlements. In addition to claims and settlement experience, the Company considers additional quantitative and qualitative factors such as changes in legislation, the legal environment, and the Company's defense strategy. The Company also evaluates the recoverability of its insurance receivable on a quarterly basis. The Company evaluates all of these factors and determines whether a change in the estimate of its liability for pending and future claims and defense costs or insurance receivable is warranted.
In connection with the recognition of liabilities for asbestos-related matters, we record asbestos-related insurance recoveries that are probable. The estimate of asbestos-related insurance recoveries represents estimated amounts due to us for previously paid and settled claims and the probable reimbursements relating to estimated liability for pending and future claims. In determining the amount of insurance recoverable, we consider available insurance, allocation methodologies, solvency and creditworthiness of the insurers. See Note 13 to the Consolidated Financial Statements for a discussion on management's judgments applied in the recognition and measurement of asbestos-related assets and liabilities.
Insurable Liabilities—The Company records liabilities for its workers' compensation, product, general and auto liabilities. The determination of these liabilities 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 the pattern and timing of the future obligation is reliably determinable. The Company records receivables from third party insurers when recovery has been determined to be probable.
Income Taxes—In determining taxable income for financial statement purposes, we must make certain estimates and judgments. These estimates and judgments affect the calculation of certain tax liabilities and the determination of the recoverability of certain of the deferred tax assets, which arise from temporary differences between the tax and financial statement recognition of revenue and expense.
In evaluating our ability to recover our deferred tax assets we consider all available positive and negative evidence including our past operating results, the existence of cumulative losses in the most recent years and our forecast of future taxable income. In estimating future taxable income, we develop assumptions including the amount of future pre-tax operating income, the reversal of temporary differences and the implementation of feasible and prudent tax planning strategies. These assumptions require significant judgment about the forecasts of future taxable income and are consistent with the plans and estimates we are using to manage the underlying businesses.
We currently have recorded valuation allowances that we will maintain until it is more-likely-than-not the deferred tax assets will be realized. Our income tax expense recorded in the future may be reduced to the extent of decreases in our valuation allowances. The realization of our remaining deferred tax assets is primarily dependent on future taxable income in the appropriate jurisdiction. Any reduction in future taxable income including but not limited to any future restructuring activities may require that we record an additional valuation allowance against our deferred tax assets. An increase in the valuation allowance could result in additional income tax expense in such period and could have a significant impact on our future earnings.
Changes in tax laws and rates could also affect recorded deferred tax assets and liabilities in the future. Management records the effect of a tax rate or law change on the Company's deferred tax assets and liabilities in the period of enactment. Future tax rate or law changes could have a material effect on the Company's financial condition, results of operations or cash flows.

47


In addition, the calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax regulations in a multitude of jurisdictions across our global operations. We recognize potential liabilities and record tax liabilities for anticipated tax audit issues in the U.S. and other tax jurisdictions based on our estimate of whether, and the extent to which, additional taxes will be due. These tax liabilities are reflected net of related tax loss carryforwards. We adjust these reserves in light of changing facts and circumstances; however, due to the complexity of some of these uncertainties, the ultimate resolution may result in a payment that is materially different from our current estimate of the tax liabilities. If our estimate of tax liabilities proves to be less than the ultimate assessment, an additional charge to expense would result. If payment of these amounts ultimately proves to be less than the recorded amounts, the reversal of the liabilities would result in tax benefits being recognized in the period when we determine the liabilities are no longer necessary.
Goodwill and Indefinite-Lived Intangible Asset Impairments—Goodwill and indefinite-lived intangible assets are assessed for impairment annually and more frequently if triggering events occur. In performing these assessments, management relies on and considers a number of factors, including operating results, business plans, economic projections, anticipated future cash flows, comparable market transactions (to the extent available), other market data and the Company's overall market capitalization.
We elected to make the first day of the fourth quarter the annual impairment assessment date for all goodwill and indefinite-lived intangible assets. In the first step of the goodwill impairment test, we compare the fair value of a reporting unit with its carrying amount. Fair value for the goodwill impairment test is determined utilizing a discounted cash flow analysis based on forecast cash flows (including estimated underlying revenue and operating income growth rates) discounted using an estimated weighted-average cost of capital for market participants. A market approach, utilizing observable market data such as comparable companies in similar lines of business that are publicly traded or which are part of a public or private transaction (to the extent available), is used to corroborate the discounted cash flow analysis performed at each reporting unit. If the carrying amount of a reporting unit exceeds its fair value, goodwill is considered potentially impaired and further tests are performed to measure the amount of impairment loss. In the second step of the goodwill impairment test, we compare the implied fair value of a reporting unit's goodwill with the carrying amount of the reporting unit's goodwill. If the carrying amount of a reporting unit's goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to the excess of the carrying amount of goodwill over its implied fair value. The implied fair value of goodwill is determined in the same manner that the amount of goodwill recognized in a business combination is determined. We allocate the fair value of a reporting unit to all of the assets and liabilities of that unit, including intangible assets, as if the reporting unit had been acquired in a business combination. Any excess of the fair value of a reporting unit over the amounts assigned to its assets and liabilities represents the implied fair value of goodwill.
We recorded no goodwill impairments in conjunction with our annual goodwill impairment assessment performed during the fourth quarter of fiscal 2013.
Fair value determinations require considerable judgment and are sensitive to changes in underlying assumptions and factors. As a result, there can be no assurance that the estimates and assumptions made for purposes of the annual goodwill impairment test will prove to be accurate predictions of the future. Examples of events or circumstances that could reasonably be expected to negatively affect the underlying key assumptions and ultimately impact the estimated fair value of the aforementioned reporting units may include such items as follows:
A prolonged downturn in the business environment in which the reporting units operate (i.e. sales volumes and prices) especially in the commercial construction and retailer end markets;
An economic recovery that significantly differs from our assumptions in timing or degree;
Volatility in equity and debt markets resulting in higher discount rates; and
Unexpected regulatory changes.
While historical performance and current expectations have resulted in fair values of goodwill in excess of carrying values, if our assumptions are not realized, it is possible that in the future an impairment charge may need to be recorded. However, it is not possible at this time to determine if an impairment charge would result or if such a charge would be material.
Long-Lived Assets—Asset groups 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 that the carrying amount of the asset group may not be fully recoverable. Tyco performs undiscounted operating cash flow analyses to determine if impairment exists. For purposes of recognition and measurement of an impairment for assets held for use, Tyco groups assets and liabilities at the lowest level for which cash flows are separately identified. If an impairment is determined to exist, any related impairment loss is calculated based on fair value. Impairments to long-lived assets to be disposed of are recorded based upon the fair value less cost to sell of the applicable assets. The calculation of the fair value of long-lived assets is based on assumptions concerning the amount and timing of estimated future cash flows and assumed discount rates,

48


reflecting varying degrees of perceived risk. Since judgment is involved in determining the fair value and useful lives of long-lived assets, there is a risk that the carrying value of our long-lived assets may be overstated or understated.
Pension and Postretirement Benefits—Our pension expense and obligations are developed from actuarial valuations. Two critical assumptions in determining pension expense and obligations are the discount rate and expected long-term return on plan assets. We evaluate these assumptions at least annually. Other assumptions reflect demographic factors such as retirement, mortality and turnover and are evaluated periodically and updated to reflect our actual experience. Actual results may differ from actuarial assumptions resulting in actuarial gains and losses. For active plans, such actuarial gains and losses will be amortized over the average expected service period of the participants and in the case of inactive plans over the average remaining life expectancy of participants. The discount rate represents the market rate for high-quality fixed income investments and is used to calculate the present value of the expected future cash flows for benefit obligations under our pension plans. A decrease in the discount rate increases the present value of pension benefit obligations. A 25 basis point decrease in the discount rate would increase the present value of pension obligations by approximately $79 million and increase our annual pension expense by approximately $2 million. We consider the relative weighting of plan assets by class, historical performance of asset classes over long-term periods, asset class performance expectations as well as current and future economic conditions in determining the expected long-term return on plan assets. A 25 basis point decrease in the expected long-term return on plan assets would increase our annual pension expense by approximately $5 million.
Liquidity and Capital Resources
A fundamental objective of the Company is to have sufficient liquidity, balance sheet strength, and financial flexibility to fund the operating and capital requirements of its core businesses around the world. The primary source of funds to finance our operations and capital expenditures is cash generated by operations. In addition, we maintain a commercial paper program, have access to a committed revolving credit facility and have access to equity and debt capital from public and private sources. We continue to balance our operating, investing and financing uses of cash through investments and acquisitions in our core businesses, dividends and share repurchases. In addition, we believe our cash position, amounts available under our credit facility, commercial paper program and cash provided by operating activities will be adequate to cover our operational and business needs in the foreseeable future.
As of September 27, 2013 and September 28, 2012, our cash and cash equivalents, short- and long-term debt, and Tyco shareholder's equity are as follows:
 
As of
($ in millions)
September 27, 2013
 
September 28, 2012
Cash and cash equivalents
$
563

 
$
844

Total debt
$
1,463

 
$
1,491

Shareholders' equity
$
5,098

 
$
4,994

Total debt as a % of total capital
22.3
%
 
23.0
%
The Company expects to pay (i) approximately $100 million, within the next 12 months, to settle intercompany liabilities due to Yarway and (ii) $163 million to settle certain pre-2012 Separation related tax liabilities. Although the timing and amounts of these payments are subject to a number of uncertainties, the Company expects to issue up to $500 million of long-term debt throughout fiscal 2014 to ensure that sufficient funds are available on a cost-effective basis for these and other general corporate purposes. See Notes 13 and 6, respectively, to the Consolidated Financial Statements.
Sources and uses of cash
In summary, our cash flows from operating, investing, and financing from continuing operations for fiscal 2013, 2012 and 2011 were as follows:
 
For the Years Ended
($ in millions)
September 27, 2013
 
September 28, 2012
 
September 30, 2011
Net cash provided by operating activities
$
841

 
$
701

 
$
661

Net cash used in investing activities
(655
)
 
(582
)
 
(61
)
Net cash used in financing activities
(456
)
 
(508
)
 
(938
)
Cash flow from operating activities

49


Cash flow from operating activities can fluctuate significantly from period to period as working capital needs and the timing of payments for items such as restructuring activities, pension funding, income taxes and other items impact reported cash flow.
The net change in working capital decreased operating cash flow by $415 million in 2013. The significant changes in working capital included a $213 million decrease in accrued expenses and other current liabilities, an $87 million increase in accounts receivable, and a $34 million increase in inventories, partially offset by an $52 million decrease in prepaid expenses and other current assets.
The net change in working capital decreased operating cash flow by $489 million in 2012. The significant changes in working capital included a $172 million decrease in income taxes payable, an $80 million decrease in accrued expenses and other current liabilities, a $128 million increase in accounts receivable, an $86 million increase in prepaid expenses and other current assets, and a $72 million increase in inventories.
The net change in working capital decreased operating cash flow by $348 million in 2011. The significant changes in working capital included a $216 million decrease in accrued and other liabilities, a $47 million increase in accounts receivable, a $42 million increase in inventories and a $33 million decrease in accounts payable.
During 2013, 2012 and 2011, we paid approximately $84 million, $89 million and $90 million, respectively, in cash related to restructuring activities. See Note 4 to our Consolidated Financial Statements for further information regarding our restructuring activities.
In connection with the 2012 Separation, we paid $165 million, $18 million and nil in separation costs during 2013, 2012 and 2011, respectively.
During 2013, 2012 and 2011, we made environmental remediation payments related to environmental remediation activities for a facility located in Marinette, Wisconsin, of $51 million, $10 million and $5 million, respectively.
During the years ended September 27, 2013, September 28, 2012 and September 30, 2011 we made required contributions of $56 million, $88 million and $63 million, respectively, to our U.S. and non-U.S. pension plans. We also made voluntary contributions of nil during the years ended September 27, 2013 and September 28, 2012 and approximately $12 million during the year ended September 30, 2011 to our U.S. plans. The Company anticipates that it will contribute at least the minimum required to its pension plans in 2014 of $25 million for the U.S. plans and $35 million for non-U.S. plans.
Income taxes paid, net of refunds, related to continuing operations were $155 million, $147 million and $121 million in 2013, 2012 and 2011, respectively.
Net interest paid related to continuing operations were $79 million, $201 million and $195 million in 2013, 2012 and 2011, respectively.
Cash flow from investing activities
Cash flows related to investing activities consist primarily of cash used for capital expenditures and acquisitions, and proceeds derived from divestitures of businesses and assets.
We made capital expenditures of $377 million, $406 million and $371 million during 2013, 2012 and 2011, respectively. The level of capital expenditures in fiscal year 2014 is expected to exceed the spending levels in fiscal year 2013 and is also expected to exceed depreciation expense.
During 2013, we paid cash for acquisitions included in continuing operations totaling $229 million, net of $9 million cash acquired, which primarily related to the acquisition of Exacq Technologies within our Global Products segment. During 2012, we paid cash for acquisitions included in continuing operations totaling $217 million, net of cash acquired of $17 million, which primarily related to the acquisition of Visonic Ltd. within our Global Products segment. During 2011, we paid cash for acquisitions included in continuing operations totaling $353 million, net of cash acquired of $3 million, which primarily related to the acquisitions of Signature Security Group within our ROW Installation & Services segment and Chemguard within our Global Products segment.
During 2013 and 2011, we received cash proceeds, net of cash divested, of $17 million and $709 million, respectively, for divestitures. During 2012, cash paid related to divestitures was $5 million. The cash proceeds in 2011 primarily related to the sale of a majority interest in our Electrical and Metal Products business of $713 million. See Note 3 to our Consolidated Financial Statements for further information.
We maintain captive insurance companies to manage certain of our insurable liabilities. The captive insurance companies hold certain investment accounts for the purposes of providing collateral for our insurable liabilities. During the year ended

50


September 27, 2013, our captive insurance companies made net purchases of investments of $45 million and during the years ended September 28, 2012 and September 30, 2011, our captive insurance companies made net sales of investments of $41 million and $26 million, respectively.
Cash flow from financing activities
Cash flows from financing activities relate primarily to proceeds received from incurring debt and issuing stock, and cash used to repay debt, repurchase stock and make dividend payments to shareholders.
During the fourth quarter of 2012, in connection with the Separation, Tyco and its finance subsidiary, Tyco International Finance S.A. ("TIFSA"), redeemed various debt securities maturing from 2013 to 2023 issued by TIFSA and/or Tyco, in an aggregate principal amount of $2.6 billion. See Note 10 to our Consolidated Financial Statements for further information.
On June 22, 2012, TIFSA, as the Borrower, and the Company as the Guarantor, entered into a Five-Year Senior Unsecured Credit Agreement providing for revolving credit commitments in the aggregate amount of $1.0 billion (the "2012 Credit Agreement"). In connection with entering into the 2012 Credit Agreement, TIFSA and the Company terminated the existing Four-Year Senior Unsecured Credit Agreement, dated March 24, 2011, which provided for revolving credit commitments in the aggregate amount of $750 million. Additionally, the Company's Five-Year Senior Unsecured Credit Agreement, dated April 25, 2007, terminated on September 28, 2012.
As a result of entering into the 2012 Credit Agreement and the terminations described above, we had total commitments as of September 27, 2013 of $1.0 billion under our revolving credit facility. As of September 27, 2013, there were no amounts drawn under this revolving credit facility.
TIFSA's revolving credit facility contains customary terms and conditions, and financial covenants that limit the ratio of our debt to earnings before interest, taxes, depreciation, and amortization and that limit our ability to incur subsidiary debt or grant liens on our property. Our indentures contain customary covenants including limits on negative pledges, subsidiary debt and sale/leaseback transactions. None of these covenants are considered restrictive to our business.
During 2013 and 2012, TIFSA issued commercial paper to U.S. institutional accredited investors and qualified institutional buyers. Borrowings under the commercial paper program are available for general corporate purposes. As of September 27, 2013 and September 28, 2012, TIFSA had no commercial paper outstanding. The maximum aggregate amount of unsecured commercial paper notes available to be issued, on a private placement basis, under the commercial paper program is $1 billion as of September 27, 2013.
On January 12, 2011, TIFSA issued $250 million aggregate principal amount of 3.75% notes due on January 15, 2018 (the "2018 Notes") and $250 million aggregate principal amount of 4.625% notes due on January 15, 2023 (the "2023 Notes"), which are fully and unconditionally guaranteed by the Company. TIFSA received net cash proceeds of approximately $494 million. The net proceeds, along with other available funds, were used to fund the repayment of all of our outstanding 6.75% notes due in February 2011 with a principal amount of $516 million. $183 million aggregate principal amount of the 2018 Notes and $208 million aggregate principal amount of the 2023 Notes were redeemed in the fourth quarter of 2012, in connection with the Separation, as described above.
Pursuant to our share repurchase program, we may repurchase Tyco shares from time to time in open market purchases at prevailing market prices, in negotiated transactions off the market, or pursuant to an approved trading plan in accordance with applicable regulations. In January 2013, the Company's Board of Directors approved an additional $600 million in share repurchase authority. During the year ended September 27, 2013, we repurchased approximately 10 million common shares for approximately $300 million under our 2011 and 2013 share repurchase programs, which completed the 2011 program. During the year ended September 28, 2012, we repurchased approximately 11 million common shares for approximately $500 million under the 2011 share repurchase program. During the year ended September 30, 2011, we repurchased approximately 30 million common shares for approximately $1.3 billion under the 2011, 2010 and 2008 share repurchase programs, which completed both the 2010 and 2008 programs.
On March 6, 2013, our shareholders approved a cash dividend of $0.64 per common share payable to shareholders in four quarterly installments of $0.16 in May 2013, August 2013, November 2013 and February 2014. On March 7, 2012, our shareholders approved a cash dividend of $0.50 per common share payable to shareholders in two quarterly installments of $0.25 each on May 23, 2012 and August 22, 2012. Additionally, on September 17, 2012, our shareholders approved another cash dividend of $0.30 per common share payable to shareholders in two quarterly installments of $0.15 per share to be paid November 15, 2012 and February 20, 2013. The $0.30 dividend reflects the impact of the 2012 Separation on the Company's dividend policy. During fiscal 2013, 2012 and 2011, we paid cash dividends of approximately $288 million, $461 million and $458 million, respectively. See Note 15 to our Consolidated Financial Statements for further information.

51


Management believes that cash generated by or available to us should be sufficient to fund our capital and operational business needs for the foreseeable future, including capital expenditures, quarterly dividend payments and share repurchases.
Commitments and Contingencies
For a detailed discussion of contingencies related to tax and litigation matters and governmental investigations, see Notes 6 and 13 to our Consolidated Financial Statements.
Contractual Obligations
Contractual obligations and commitments for debt, minimum lease payment obligations under non-cancelable operating leases and purchase obligations as of September 27, 2013 are as follows ($ in millions):
 
Fiscal Year
 
 
 
 
 
2014
 
2015
 
2016
 
2017
 
2018
 
Thereafter
 
Total
Debt principal(1)
$

 
$

 
$
258

 
$

 
$
67

 
$
1,111

 
$
1,436

Interest payments(2)
93

 
93

 
88

 
84

 
83

 
129

 
570

Operating leases
158

 
128

 
107

 
75

 
29

 
40

 
537

Purchase obligations(3)
334

 
64

 
42

 
21

 

 
20

 
481

Total contractual cash obligations(4)
$
585

 
$
285

 
$
495

 
$
180

 
$
179

 
$
1,300

 
$
3,024

_______________________________________________________________________________

(1) 
Debt principal consists of the aggregate principal amount of our public debt outstanding, excluding debt discount, swap activity and interest.
(2) 
Interest payments consist of interest on our fixed interest rate debt.
(3) 
Purchase obligations consist of commitments for purchases of goods and services.
(4) 
Other long-term liabilities excluded from the above contractual obligation table primarily consist of the following: pension and postretirement costs (see Note 14 to the Consolidated Financial Statements), income taxes (see Note 6 to the Consolidated Financial Statements), contingent consideration (see Note 5 to the Consolidated Financial Statements), warranties (see Note 11 to the Consolidated Financial Statements) and environmental liabilities (see Note 13 to the Consolidated Financial Statements). We are unable to estimate the timing of payment for these items due to the inherent uncertainties related to these obligations. However, the minimum required contributions to our pension plans are expected to be approximately $60 million in 2014 and we do not expect to make any material contributions in 2014 related to postretirement benefit plans.
As of September 27, 2013 we recorded gross unrecognized tax benefits of $257 million and gross interest and penalties of $41 million. We are unable to make a reasonably reliable estimate of the timing for the remaining payments in future years; therefore, such amounts have been excluded from the above contractual obligation table. However, based on the current status of our income tax audits, we believe that it is reasonably possible that between nil and $30 million in unrecognized tax benefits may be resolved in the next twelve months. Although the Company had unrecognized tax benefits that, if recognized, would affect the effective tax rate, the Company had net operating loss carryforwards which would offset the cash impact of any such recognition of unrecognized tax benefits relating to the current year.
In the normal course of business, we are liable for contract completion and product performance. In the opinion of management, such obligations will not significantly affect our financial position, results of operations or cash flows.
In connection with the 2012 Separation we entered into a liability sharing agreement regarding certain actions that were pending against Tyco prior to the 2012 Separation. Under the 2012 Tax Sharing Agreement, Pentair, Tyco and ADT share (i) certain pre-Distribution income tax liabilities that arise from adjustments made by tax authorities to Tyco Flow Control's, Tyco's and ADT's U.S. income tax returns, and (ii) payments required to be made by Tyco with respect to the 2007 Tax Sharing Agreement, excluding approximately $175 million of pre-2012 Separation related tax liabilities that were anticipated to be paid prior to the 2012 Separation (collectively, "Shared Tax Liabilities"). The Company will be responsible for the first $500 million of Shared Tax Liabilities. Pentair and ADT will share 42% and 58%, respectively, of the next $225 million of Shared Tax Liabilities. Pentair, ADT and Tyco will share 20%, 27.5% and 52.5%, respectively, of Shared Tax Liabilities above $725 million. The Company expects to pay $163 million to settle certain pre-2012 Separation related tax liabilities. The timing and amounts of these payments are subject to a number of uncertainties and could change. See Notes 13 and 6, respectively, to the Consolidated Financial Statements.

52


In connection with the 2007 Separation, we entered into a liability sharing agreement regarding certain actions that were pending against Tyco prior to the 2007 Separation. Under the 2007 Separation and Distribution Agreement and 2007 Tax Sharing Agreement, we have assumed 27%, Covidien has assumed 42% and TE Connectivity has assumed 31% of certain Tyco pre-Separation contingent and other corporate liabilities, which, as of September 27, 2013, primarily relate to tax contingencies and potential actions with respect to the spin-offs or the distributions made or brought by any third party.
Backlog
We had a backlog of unfilled orders of $5,326 million and $5,142 million as of September 27, 2013 and September 28, 2012, respectively.
The Company's backlog includes recurring revenue-in-force and long-term deferred revenue for upfront fees from its NA and ROW Installation & Services segments. Revenue-in-force represents 12 months' revenue associated with monitoring and maintenance services under contract in the security and fire business. Backlog by segment was as follows ($ in millions):
 
NA Installation
& Services
 
ROW
Installation
& Services
 
Global
Products
 
Total
As of September 28, 2012
 
 
 
 
 
 
 
Backlog
$
955

 
$
910

 
$
159

 
$
2,024

Recurring Revenue in Force
1,227

 
1,496

 

 
2,723

Deferred Revenue
325

 
70

 

 
395

Total Backlog
$
2,507

 
$
2,476

 
$
159

 
$
5,142

As of September 27, 2013
 
 
 
 
 
 
 
Backlog
$
908

 
$
1,015

 
$
196

 
$
2,119

Recurring Revenue in Force
1,239

 
1,602

 

 
2,841

Deferred Revenue
296

 
70

 

 
366

Total Backlog
$
2,443

 
$
2,687

 
$
196

 
$
5,326

Backlog increased $184 million, or 3.6%, to $5,326 million as of September 27, 2013 as compared to $5,142 million in the prior year. The net increase in backlog as of September 27, 2013 was due to a $211 million increase in total backlog in our ROW Installation & Services segment, partially offset by a $64 million decrease in total backlog in our NA Installation & Services segment. The increase in total backlog as of September 27, 2013 in our ROW Installation & Services segment was primarily due to a $106 million increase in recurring revenue-in-force across all regions as well as a $105 million increase in backlog across all regions, driven in part by acquisitions in our Asia-Pacific region. The decrease in total backlog as of September 27, 2013 in our NA Installation & Services segment was driven by a $47 million decrease in backlog, a $12 million increase in recurring revenue-in-force and a $29 million decrease in deferred revenue as a result of continued pressure in our North America security business, partially offset by improvements in our North America fire business. Changes in foreign currency had an unfavorable impact on backlog of $67 million, or 1.3%.
Guarantees
Certain of our business segments have guaranteed the performance of third-parties and provided financial guarantees for uncompleted work and financial commitments. The terms of these guarantees vary with end dates ranging from the current fiscal year through the completion of such transactions. The guarantees would typically be triggered in the event of nonperformance and performance under the guarantees, if required, would not have a material effect on our financial position, results of operations or cash flows.
There are certain guarantees or indemnifications extended among Tyco, Covidien, TE Connectivity, ADT and Pentair in accordance with the terms of the 2007 and 2012 Separation and Distribution Agreements and the Tax Sharing Agreements. The guarantees primarily relate to certain contingent tax liabilities included in the Tax Sharing Agreements. At the time of the 2007 and 2012 Separations, we recorded liabilities necessary to recognize the fair value of such guarantees and indemnifications. See Note 6 to the Consolidated Financial Statements for further discussion of the Tax Sharing Agreements. In addition, prior to the 2007 and 2012 Separations we provided support in the form of financial and/or performance guarantees to various Covidien, TE Connectivity, ADT and Tyco Flow Control operating entities. To the extent these guarantees were not assigned in connection with the 2007 and 2012 Separations, we assumed primary liability on any remaining such support. See Note 11 to the Consolidated Financial Statements for a discussion of these liabilities.
In disposing of assets or businesses, we often provide representations, warranties and/or indemnities to cover various risks including, for example, unknown damage to the assets, environmental risks involved in the sale of real estate, liability to

53


investigate and remediate environmental contamination at waste disposal sites and manufacturing facilities, and unidentified tax liabilities and legal fees related to periods prior to disposition. We have no reason to believe that these uncertainties would have a material adverse effect on our financial position, results of operations or cash flows. We have recorded liabilities for known indemnifications included as part of environmental liabilities.
In the normal course of business, we are liable for contract completion and product performance. We record estimated product warranty costs at the time of sale. In the opinion of management, such obligations will not significantly affect our financial position, results of operations or cash flows.
As of September 27, 2013, we had total outstanding letters of credit and bank guarantees of approximately $424 million.
For a detailed discussion of guarantees and indemnifications, see Note 11 to the Consolidated Financial Statements.
Accounting Pronouncements
See Note 1 to the Consolidated Financial Statements for Recently Adopted Accounting Pronouncements and Recently Issued Accounting Pronouncements.
Non-U.S. GAAP Measure
In an effort to provide investors with additional information regarding our results as determined by U.S. GAAP, we also disclose the non-U.S. GAAP measure of organic revenue growth (decline). We believe that this measure is useful to investors in evaluating our operating performance for the periods presented. When read in conjunction with our U.S. GAAP revenue, it enables investors to better evaluate our operations without giving effect to fluctuations in foreign exchange rates and acquisition and divestiture activity, either of which may be significant from period to period. In addition, organic revenue growth (decline) is a factor we use in internal evaluations of the overall performance of our business. This measure is not a financial measure under U.S. GAAP and should not be considered as a substitute for revenue as determined in accordance with U.S. GAAP, and it may not be comparable to similarly titled measures reported by other companies. Organic revenue growth (decline) presented herein is defined as revenue growth (decline) excluding the effects of foreign currency fluctuations, acquisitions and divestitures and other changes that may not reflect underlying results and trends (for example, the 53rd week of operations in fiscal year 2011). Our organic growth (decline) calculations incorporate an estimate of prior year reported net revenue associated with acquired entities that have been fully integrated within the first year, and exclude prior year net revenue associated with entities that do not meet the criteria for discontinued operations which have been divested within the past year ("adjusted number"). We calculate the rate of organic growth (decline) based on the adjusted number to better reflect the rate of growth (decline) of the combined business, in the case of acquisitions, or the remaining business, in the case of dispositions. We base the rate of organic growth (decline) for acquired businesses that are not fully integrated within the first year upon unadjusted historical net revenue. Foreign currency fluctuations are calculated by subtracting (i) the U.S. dollar equivalent of local currencies for the current period using monthly weighted average exchange rates for the prior period from (ii) the U.S. dollar equivalent of local currencies for the current period using monthly weighted average exchange rates for the current period. We may use organic revenue growth (decline) as a component of our compensation programs.
The table below details the components of organic revenue growth (decline) and reconciles the non-U.S. GAAP measure to U.S. GAAP net revenue growth (decline).

54


Fiscal 2013
 
Net
Revenue
for
Fiscal 2012
 
Base Year
Adjustments
(Divestitures)
 
Adjusted
Fiscal 2012
Base Revenue
 
Foreign
Currency
 
Acquisitions
 
Other(2)
 
Organic
Revenue
 
Organic Growth (Decline)
Percentage(1)
 
Net
Revenue
for
Fiscal 2013
 
($ in millions)
NA Installation & Services
$
3,962

 
$
(30
)
 
$
3,932

 
$
(3
)
 
$
7

 
$

 
$
(45
)
 
(1.1
)%
 
$
3,891

ROW Installation & Services
4,341

 
(10
)
 
4,331

 
(49
)
 
93

 

 
42

 
1.0
 %
 
4,417

Global Products
2,100

 
2

 
2,102

 
(3
)
 
68

 
39

 
133

 
6.3
 %
 
2,339

Total Net Revenue
$
10,403

 
$
(38
)
 
$
10,365

 
$
(55
)
 
$
168

 
$
39

 
$
130

 
1.3
 %
 
$
10,647

_______________________________________________________________________________

(1) 
Organic revenue growth percentage based on adjusted fiscal 2012 base revenue.
(2) 
Amount represents contractual revenue from ADT under the 2012 Separation and Distribution Agreement which is excluded from the organic revenue calculation.
Fiscal 2012
 
Net
Revenue
for
Fiscal 2011
 
Base Year
Adjustments
(Divestitures)
 
Adjusted
Fiscal 2011
Base Revenue
 
Foreign
Currency
 
Acquisitions
 
Other(2)
 
Organic
Revenue
 
Organic
Growth (Decline)
Percentage(1)
 
Net
Revenue
for
Fiscal 2012
 
($ in millions)
NA Installation & Services
$
4,022

 
$

 
$
4,022

 
$
(10
)
 
$
4

 
$
(42
)
 
$
(12
)
 
(0.3
)%
 
$
3,962

ROW Installation & Services
4,434

 
(67
)
 
4,367

 
(178
)
 
105

 
(34
)
 
81

 
1.9
 %
 
4,341

Global Products
1,754

 
13

 
1,767

 
(38
)
 
221

 
(28
)
 
178

 
10.1
 %
 
2,100

Total before Corporate and other
$
10,210

 
$
(54
)
 
$
10,156

 
$
(226
)
 
$
330

 
$
(104
)
 
$
247

 
2.4
 %
 
$
10,403

Corporate and Other(3)
347

 
(347
)
 

 

 

 

 

 
 %
 

Total Net Revenue
$
10,557

 
$
(401
)
 
$
10,156

 
$
(226
)
 
$
330

 
$
(104
)
 
$
247

 
2.4
 %
 
$
10,403

_______________________________________________________________________________

(1) 
Organic revenue growth percentage based on adjusted fiscal 2011 base revenue.
(2) 
Amounts represent the impact of the 53rd week of revenue for each segment during fiscal 2011 at fiscal 2012 foreign exchange rates.
(3) 
Corporate and Other includes the former Electrical and Metal products business of which we divested a majority interest in during the first quarter of 2011.

Forward-Looking Information
Certain statements in this report are "forward-looking statements" within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. All forward-looking statements involve risks and uncertainties. All statements contained herein that are not clearly historical in nature are forward-looking, and the words "anticipate," "believe," "expect," "estimate," "project" and similar expressions are generally intended to identify forward-looking statements. Any forward-looking statement contained herein, in press releases, written statements or other documents filed with the SEC, or in Tyco's communications and discussions with investors and analysts in the normal course of business through meetings, webcasts, phone calls and conference calls, regarding expectations with respect to future events, including sales, earnings, cash flows, operating and tax efficiencies, product expansion, backlog, the consummation and benefits of acquisitions and divestitures, as well as financings and repurchases of debt or equity securities, are subject to known and unknown risks, uncertainties and contingencies. Many of these risks, uncertainties and contingencies are beyond our control, and may cause actual results, performance or achievements to differ materially from anticipated results, performances or achievements. Factors that might affect such forward-looking statements include, among other things:
overall economic and business conditions, and overall demand for Tyco's goods and services;
economic and competitive conditions in the industries, end markets and regions served by our businesses;
changes in legal and tax requirements (including tax rate changes, new tax laws or treaties and revised tax law interpretations);

55


results and consequences of Tyco's internal investigations and governmental investigations concerning the Company's governance, management, internal controls and operations including its business operations outside the United States;
the outcome of litigation, arbitrations and governmental proceedings;
effect of income tax audits, litigation, settlements and appeals;
our ability to repay or refinance our outstanding indebtedness as it matures;
our ability to operate within the limitations imposed by financing arrangements and to maintain our credit ratings;
interest rate fluctuations and other changes in borrowing costs, or other consequences of volatility in the capital or credit markets;
other capital market conditions, including availability of funding sources and currency exchange rate fluctuations;
availability of and fluctuations in the prices of key raw materials;
changes affecting customers or suppliers;
economic and political conditions in international markets, including governmental changes and restrictions on the ability to transfer capital across borders;
our ability to achieve anticipated cost savings;
our ability to execute our portfolio refinement and acquisition strategies, including successfully integrating acquired operations;
potential impairment of our goodwill, intangibles and/or our long-lived assets;
our ability to realize the intended benefits of the 2012 Separation, including the integration of our commercial security and fire protection businesses;
other risks associated with the 2012 Separation, for example the risk that we may be liable for certain contingent liabilities of the spun-off entities if they were to become insolvent;
risks associated with our Swiss incorporation, including the possibility of reduced flexibility with respect to certain aspects of capital management and corporate governance, increased or different regulatory burdens, and the possibility that we may not realize anticipated tax benefits;
the possible effects on Tyco of future legislation in the United States that may limit or eliminate potential U.S. tax benefits resulting from Tyco International's Swiss incorporation or deny U.S. government contracts to Tyco based upon its Swiss incorporation; and