10-Q 1 a2196076z10-q.htm 10-Q

Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549



FORM 10-Q


ý

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended December 25, 2009

or

o

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

001-13836
(Commission File Number)



TYCO INTERNATIONAL LTD.
(Exact name of Registrant as specified in its charter)

Switzerland
(Jurisdiction of Incorporation)
  98-0390500
(I.R.S. Employer Identification Number)

Freier Platz 10, CH-8200 Schaffhausen, Switzerland
(Address of registrant's principal executive office)

41-52-633-02-44
(Registrant's telephone number)

        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 Web site, 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 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 number of common shares outstanding as of January 20, 2010 was 475,191,771.


TYCO INTERNATIONAL LTD.
INDEX TO FORM 10-Q

 
   
 
Page
Part I.   Financial Information    

Item 1.

 

Financial Statements

 

1

 

 

Consolidated Statements of Operations (Unaudited) for the quarters ended December 25, 2009 and December 26, 2008

 

1

 

 

Consolidated Balance Sheets (Unaudited) as of December 25, 2009 and September 25, 2009

 

2

 

 

Consolidated Statements of Cash Flows (Unaudited) for the quarters ended December 25, 2009 and December 26, 2008

 

3

 

 

Consolidated Statements of Shareholders' Equity (Unaudited) for the quarters ended December 25, 2009 and December 26, 2008

 

4

 

 

Notes to Consolidated Financial Statements (Unaudited)

 

5

Item 2.

 

Management's Discussion and Analysis of Financial Condition and Results of Operations

 

42

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

57

Item 4.

 

Controls and Procedures

 

58


Part II.


 


Other Information


 


 

Item 1.

 

Legal Proceedings

 

59

Item 1A.

 

Risk Factors

 

63

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

63

Item 3.

 

Defaults Upon Senior Securities

 

63

Item 4.

 

Submission of Matters to a Vote of Security Holders

 

63

Item 5.

 

Other Information

 

63

Item 6.

 

Exhibits

 

64

Signatures

 

65

Table of Contents


PART I. FINANCIAL INFORMATION

Item 1.    Financial Statements

        

TYCO INTERNATIONAL LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(in millions, except per share data)

 
  For the Quarters Ended  
 
  December 25,
2009
  December 26,
2008
 

Revenue from product sales

  $ 2,528   $ 2,768  

Service revenue

    1,718     1,658  
           
 

Net revenue

    4,246     4,426  

Cost of product sales

    1,805     1,979  

Cost of services

    876     890  

Selling, general and administrative expenses

    1,140     1,140  

Restructuring, asset impairment and divestiture charges, net (see Notes 2 and 3)

    11     4  
           
 

Operating income

    414     413  

Interest income

    9     12  

Interest expense

    (76 )   (73 )

Other income, net

    9     4  
           
 

Income from continuing operations before income taxes

    356     356  

Income tax expense

    (53 )   (84 )
           
 

Income from continuing operations

    303     272  

Income from discontinued operations, net of income taxes

        5  
           
 

Net income

    303     277  

Less: noncontrolling interest in subsidiaries net income

    1      
           
 

Net income attributable to Tyco common shareholders

  $ 302   $ 277  
           

Amounts attributable to Tyco common shareholders:

             
 

Income from continuing operations

  $ 302   $ 272  
 

Income from discontinued operations

        5  
           
 

Net income attributable to Tyco common shareholders

  $ 302   $ 277  
           

Basic earnings per share attributable to Tyco common shareholders:

             
 

Income from continuing operations

  $ 0.64   $ 0.57  
 

Income from discontinued operations

        0.02  
           
 

Net income attributable to Tyco common shareholders:

  $ 0.64   $ 0.59  
           

Diluted earnings per share attributable to Tyco common shareholders:

             
 

Income from continuing operations

  $ 0.63   $ 0.57  
 

Income from discontinued operations

        0.01  
           
 

Net income attributable to Tyco common shareholders

  $ 0.63   $ 0.58  
           

Weighted-average number of shares outstanding:

             
 

Basic

    476     473  
 

Diluted

    479     475  

See Notes to Consolidated Financial Statements.

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TYCO INTERNATIONAL LTD.

CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(in millions, except share data)

 
  December 25,
2009
  September 25,
2009
 

Assets

             

Current Assets:

             
 

Cash and cash equivalents

  $ 2,473   $ 2,354  
 

Accounts receivable, less allowance for doubtful accounts of $176 and $173, respectively

    2,499     2,629  
 

Inventories

    1,484     1,443  
 

Prepaid expenses and other current assets

    957     972  
 

Deferred income taxes

    407     413  
 

Assets held for sale

    153     156  
           
   

Total current assets

    7,973     7,967  

Property, plant and equipment, net

    3,506     3,497  

Goodwill

    8,786     8,791  

Intangible assets, net

    2,711     2,647  

Other assets

    2,625     2,651  
           
   

Total Assets

  $ 25,601   $ 25,553  
           

Liabilities and Equity

             

Current Liabilities:

             
 

Loans payable and current maturities of long-term debt

  $ 17   $ 245  
 

Accounts payable

    1,159     1,244  
 

Accrued and other current liabilities

    2,171     2,476  
 

Deferred revenue

    546     590  
 

Liabilities held for sale

    154     161  
           
   

Total current liabilities

    4,047     4,716  

Long-term debt

    4,506     4,029  

Deferred revenue

    1,122     1,134  

Other liabilities

    2,724     2,720  
           
   

Total Liabilities

    12,399     12,599  
           

Commitments and Contingencies (see Note 10)

             

Tyco Shareholders' Equity:

             
 

Common shares, CHF 7.60 par value, 814,801,671 shares authorized; 479,346,720 shares issued as of December 25, 2009 and September 25, 2009, respectively

    3,121     3,122  
 

Common shares held in treasury, 4,202,496 and 5,182,984 shares, as of December 25, 2009 and September 25, 2009, respectively

    (173 )   (214 )
 

Contributed surplus

    10,937     10,940  
 

Accumulated deficit

    (518 )   (820 )
 

Accumulated other comprehensive loss

    (179 )   (87 )
           
   

Total Tyco Shareholders' Equity

    13,188     12,941  
 

Noncontrolling interest

    14     13  
           
   

Total Equity

    13,202     12,954  
           
   

Total Liabilities and Equity

  $ 25,601   $ 25,553  
           

See Notes to Consolidated Financial Statements.

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TYCO INTERNATIONAL LTD.

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(in millions)

 
  For the Quarters Ended  
 
  December 25,
2009
  December 26,
2008
 

Cash Flows From Operating Activities:

             

Net income attributable to Tyco common shareholders

  $ 302   $ 277  
 

Noncontrolling interests in subsidiaries net income

    1      
 

Income from discontinued operations, net of income taxes

        (5 )
           

Income from continuing operations

    303     272  

Adjustments to reconcile net cash provided by operating activities:

             
 

Depreciation and amortization

    287     275  
 

Non-cash compensation expense

    31     29  
 

Deferred income taxes

    4     (17 )
 

Provision for losses on accounts receivable and inventory

    34     34  
 

Other non-cash items

    3     18  
 

Changes in assets and liabilities, net of the effects of acquisitions and divestitures:

             
   

Accounts receivable, net

    91     13  
   

Inventories

    (44 )   (151 )
   

Prepaid expenses and other current assets

    2     14  
   

Accounts payable

    (71 )   (175 )
   

Accrued and other liabilities

    (216 )   (300 )
   

Income taxes, net

    1     30  
   

Other

    (46 )   14  
           
     

Net cash provided by operating activities

    379     56  
           

Cash Flows From Investing Activities:

             

Capital expenditures

    (165 )   (159 )

Proceeds from disposal of assets

    16     2  

Acquisition of businesses, net of cash acquired

    (143 )   (45 )

Accounts purchased by ADT

    (150 )   (117 )

Other

    25     18  
           
     

Net cash used in investing activities

    (417 )   (301 )
           
     

Net cash provided by discontinued investing activities

        3  
           

Cash Flows From Financing Activities:

             

Repayment of short-term debt

    (242 )   (336 )

Proceeds from issuance of long-term debt

    498     787  

Repayment of long-term debt, including debt tenders

    (8 )   (345 )

Proceeds from exercise of share options

    6      

Dividends paid

    (107 )   (95 )

Repurchase of common shares by subsidiary

        (3 )

Transfer from discontinued operations

        3  

Other

    12     2  
           
     

Net cash provided by financing activities

    159     13  
           
     

Net cash used in discontinued financing activities

        (3 )
           

Effect of currency translation on cash

    (2 )   (94 )
           

Net increase (decrease) in cash and cash equivalents

    119     (326 )

Cash and cash equivalents at beginning of period

    2,354     1,519  
           

Cash and cash equivalents at end of period

  $ 2,473   $ 1,193  
           

See Notes to Consolidated Financial Statements.

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TYCO INTERNATIONAL LTD.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (UNAUDITED)

For the Quarters Ended December 25, 2009 and December 26, 2008

(in millions)

 
  Number of
Common
Shares
  Common
Shares
$0.80 Par
Value
  Treasury
Shares
  Share
Premium
  Contributed
Surplus
  Accumulated
Earnings
  Accumulated
Other
Comprehensive
Income (Loss)
  Total
Tyco
Shareholders'
Equity
  Noncontrolling
Interest
  Total
Equity
 

Balance at September 26, 2008

    473   $ 382   $ (192 ) $ 9,236   $ 4,711   $ 1,125   $ 232   $ 15,494   $ 14   $ 15,508  

Comprehensive income:

                                                             
 

Net income

                                  277           277           277  
 

Currency translation

                                        (865 )   (865 )         (865 )
 

Unrealized gain on marketable securities and derivative instruments net of income taxes of $3 million

                                        5     5           5  
 

Change in unrecognized loss and prior service cost (credit), net of income taxes of $2 million

                                        4     4           4  
                                                           
 

Total comprehensive loss

                                              (579 )         (579 )

Dividends declared

                                  (95 )         (95 )         (95 )

Vesting of share based equity awards tax effect

                            (7 )               (7 )         (7 )

Repurchase of common shares by subsidiary

                            (3 )               (3 )         (3 )

Compensation expense

                            29                 29           29  

Cumulative effect of adopting a new accounting principle, net of income tax benefit of $2 million and income taxes $28 million, respectively, (See Note 11)

                                  (5 )   61     56           56  

Other

                                  (1 )         (1 )         (1 )
                                           

Balance at December 26, 2008

    473   $ 382   $ (192 ) $ 9,236   $ 4,730   $ 1,301   $ (563 ) $ 14,894   $ 14   $ 14,908  
                                           

 

 
  Number of
Common
Shares
  Common
Shares
CHF 7.60
Par Value
  Treasury
Shares
  Contributed
Surplus
  Accumulated
Earnings
(Deficit)
  Accumulated
Other
Comprehensive
Income (Loss)
  Total
Tyco
Shareholders'
Equity
  Noncontrolling
Interest
  Total
Equity
 

Balance at September 25, 2009

    474   $ 3,122   $ (214 ) $ 10,940   $ (820 ) $ (87 ) $ 12,941   $ 13   $ 12,954  

Comprehensive income:

                                                       
 

Net income

                            302           302     1     303  
 

Currency translation

                                  (102 )   (102 )         (102 )
 

Unrealized gain on marketable securities, net of income taxes of $1 million

                                  1     1           1  
 

Retirement plans, net of income tax benefit of $4 million

                                  9     9           9  
                                                   
 

Total comprehensive income

                                        210     1     211  

Shares issued from treasury for vesting of share-based equity awards

    1     (1 )   41     (35 )               5           5  

Compensation expense

                      32                 32           32  
                                       

Balance at December 25, 2009

    475   $ 3,121   $ (173 ) $ 10,937   $ (518 ) $ (179 ) $ 13,188   $ 14   $ 13,202  
                                       

See Notes to Consolidated Financial Statements.

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TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1.    Basis of Presentation and Summary of Significant Accounting Policies

        Basis of Presentation—The unaudited Consolidated Financial Statements include the consolidated results of Tyco International Ltd., a corporation organized under the laws of Switzerland, and its subsidiaries (Tyco and all its subsidiaries, hereinafter collectively referred to as the "Company" or "Tyco"). The financial statements have been prepared in United States dollars ("USD") and in accordance with the instructions to Form 10-Q under the Securities Exchange Act of 1934, as amended. The year end condensed balance sheet was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America. These financial statements should be read in conjunction with the Consolidated Financial Statements and accompanying notes contained in the Company's Annual Report on Form 10-K for the fiscal year ended September 25, 2009 (the "2009 Form 10-K").

        The Consolidated Financial Statements included herein are unaudited, but in the opinion of management, such financial statements include all adjustments, consisting of normal recurring adjustments, necessary to summarize fairly the Company's financial position, results of operations and cash flows for the interim period. The results reported in these Consolidated Financial Statements should not be taken as indicative of results that may be expected for the entire year.

        Revenue related to the sale of electronic tags and labels utilized in retailer anti-theft systems is classified as revenue from product sales. In reporting periods prior to the first quarter of fiscal 2010, revenue related to the sale of electronic tags and labels utilized in retailer anti-theft systems was misclassified as service revenue. Such item had no effect on net revenue, operating (loss) income, net (loss) income and cash flows. No changes have been made to previously filed financial statements or in the comparative quarterly amounts presented herein, as the effect in prior periods is not material. In the first quarter of fiscal 2009, revenue related to the sale of such electronic tags and labels reflected as service revenue was $77 million and related cost of services was $47 million.

        References to 2010 and 2009 are to Tyco's fiscal quarters ending December 25, 2009 and December 26, 2008, respectively, unless otherwise indicated.

        Reclassifications—Certain prior period amounts have been reclassified to conform with the current period presentation. Specifically, the Company has realigned certain business operations in the first quarter of fiscal 2010, resulting in prior period segment amounts being recast. See Note 13.

        Recently Adopted Accounting Pronouncements—In June 2008, the Financial Accounting Standards Board ("FASB") ratified authoritative guidance for determining whether instruments granted in share-based payment transactions are participating securities. The guidance addresses whether instruments granted in share-based payment awards are participating securities prior to vesting and, therefore, must be included in the earnings allocation in calculating earnings per share under the two-class method. The guidance requires that unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend-equivalents be treated as participating securities in calculating earnings per share. The guidance became effective for Tyco in the first quarter of fiscal 2010, and has been applied retrospectively to prior periods. The adoption did not have a material impact on the Company's historical annual or quarterly basic and diluted earnings per share. See Note 6 for additional information related to the adoption of the guidance.

        In December 2007, the FASB revised the authoritative guidance for business combinations. The revised guidance retains the underlying concepts of the existing guidance in that business combinations are still accounted for at fair value. However, the accounting for certain other aspects of business

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TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

1.    Basis of Presentation and Summary of Significant Accounting Policies (Continued)


combinations will be affected. Acquisition costs will generally be expensed as incurred. Restructuring costs associated with a business combination will generally be expensed subsequent to the acquisition date. In-process research and development will be recorded at fair value as an indefinite-lived intangible at the acquisition date until it is completed or abandoned and its useful life can be determined. Changes in deferred tax asset valuation allowances and uncertain tax positions after the acquisition date will generally impact income tax expense. The revised guidance also expands required disclosures surrounding the nature and financial effects of business combinations. The revised guidance was adopted by the Company in the first quarter of fiscal 2010. The revised guidance is primarily effective for all business combinations beginning in the first quarter of fiscal 2010 and thereafter, and its adoption did not have a material impact on the Company's financial position, results of operations or cash flows for the quarter ended December 25, 2009.

        In December 2007, the FASB issued authoritative guidance for noncontrolling interests in consolidated financial statements. The guidance requires the recognition of a noncontrolling interest (minority interest prior to the adoption of the guidance) as equity in the Consolidated Financial Statements. The amount of net income attributable to the noncontrolling interest should be included in consolidated net income on the face of the Consolidated Statements of Operations. The guidance also amends certain existing consolidation procedures in order to achieve consistency with the requirements of the revised authoritative guidance for business combinations discussed above. The guidance also includes expanded disclosure requirements regarding the interests of the parent and its noncontrolling interest. The guidance was adopted by Tyco in the first quarter of fiscal 2010 and has been applied retrospectively. The adoption did not have a material impact on the Company's financial position, results of operations or cash flows.

        In September 2006, the FASB issued authoritative guidance for fair value measurements, which enhances existing guidance for measuring assets and liabilities at fair value. The guidance defines fair value, establishes a framework for measuring fair value and expands disclosure about fair value measurements. In February 2008, the FASB issued authoritative guidance which permitted companies to partially defer the effective date of the guidance for one year for nonfinancial assets and liabilities that are recognized or disclosed at fair value in the financial statements on a nonrecurring basis. During the first quarter of 2009 the Company elected to defer the adoption of the guidance for one year for non-financial assets and liabilities that are recognized or disclosed at fair value in the financial statements on a nonrecurring basis. The guidance became effective for Tyco in the first quarter of 2009 for financial assets and liabilities only. Tyco adopted the fair value provisions relating to nonfinancial assets and liabilities in the first quarter of fiscal 2010. The adoption did not have a material impact on the Company's financial position, results of operations or cash flows.

        In April 2008, the FASB issued authoritative guidance for determining the useful life of intangible assets. The guidance amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset. The guidance became effective for Tyco in the first quarter of fiscal 2010. The adoption did not have a material impact on the Company's financial position, results of operations or cash flows.

        Recently Issued Accounting Pronouncements—In September 2009, the FASB issued authoritative guidance for the accounting for revenue arrangements with multiple deliverables. The guidance establishes a selling price hierarchy for determining the selling price of a deliverable. The selling price used for each deliverable will be based on vendor-specific objective evidence if available, third-party

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TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

1.    Basis of Presentation and Summary of Significant Accounting Policies (Continued)


evidence if vendor-specific objective evidence is not available, or estimated selling price if neither vendor-specific evidence nor third-party evidence is available. The guidance requires arrangements under which multiple revenue generating activities to be performed be allocated at inception. The residual method under the existing accounting guidance has been eliminated. The guidance expands the disclosure requirements related to multiple-deliverable revenue arrangements. The guidance becomes effective for revenue arrangements entered into or materially modified beginning in fiscal 2011, with early adoption permitted. The guidance applies on a prospective basis unless the Company specifically elects to apply the guidance retrospectively. The Company is currently assessing what impact, if any, the guidance will have on its financial position, results of operations or cash flows, as well as the timing of its adoption of the guidance.

        In June 2009, the FASB issued authoritative guidance which amended the existing guidance for the consolidation of variable interest entities, to address the elimination of the concept of a qualifying special purpose entity. The guidance also replaces the quantitative-based risks and rewards calculation for determining which enterprise has a controlling financial interest in a variable interest entity with an approach focused on identifying which enterprise has the power to direct the activities of a variable interest entity, and the obligation to absorb losses of the entity or the right to receive benefits from the entity. Additionally, the guidance requires any enterprise that holds a variable interest in a variable interest entity to provide enhanced disclosures that will provide users of financial statements with more transparent information about an enterprise's involvement in a variable interest entity. The guidance is effective for Tyco in the first quarter of fiscal 2011. The Company is currently assessing what impact, if any, that the guidance will have on its financial position, results of operations or cash flows.

        In December 2008, the FASB issued authoritative guidance for employers' disclosures about postretirement benefit plan assets. The guidance requires additional disclosures about plan assets related to an employer's defined benefit pension or other post-retirement plans to enable investors to better understand how investment decisions are made, the major categories of plan assets, the inputs and valuation techniques used to measure the fair value of plan assets, the effect of fair value measurements using significant unobservable inputs (Level 3) on changes in plan assets for the period, and the significant concentrations of risk within plan assets. The disclosure provisions of the guidance are effective for Tyco in fiscal 2010 and will be adopted concurrent with the pension disclosures associated with the Company's annual valuation process during the fourth quarter of fiscal 2010.

2.    Divestitures

        The Company has continued to assess the strategic fit of its various businesses and has pursued divestiture of certain businesses which do not align with its long-term strategy.

Held for Sale and Reflected as Continuing Operations

        During the fourth quarter of 2009, the Company approved a plan to sell a business in its ADT Worldwide segment. This business has been classified as held for sale; however, its results of operations are presented in continuing operations as the criteria for discontinued operations have not been met. The Company has assessed and determined that the carrying value of this business is recoverable and will continue to assess recoverability based on current fair value, less cost to sell, until the business is sold. The Company expects to complete the sale during fiscal 2010.

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TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

2.    Divestitures (Continued)

        Balance sheet information for pending divestitures is as follows ($ in millions):

 
  December 25,
2009
  September 25,
2009
 

Accounts receivable, net

  $ 39   $ 39  

Inventories

    1     2  

Prepaid expenses and other current assets

    20     22  

Property, plant and equipment, net

    22     22  

Goodwill and intangible assets, net

    8     9  

Other assets

    63     62  
           
 

Total assets

  $ 153   $ 156  
           

Loans payable and current maturities of long-term debt

  $   $  

Accounts payable

    22     22  

Accrued and other current liabilities

    60     67  

Other liabilities

    72     72  
           
 

Total liabilities

  $ 154   $ 161  
           

Gains (Losses) on divestitures, net

        During the quarters ended December 25, 2009 and December 26, 2008, the Company recorded a $1 million loss and $3 million loss, respectively, in restructuring, asset impairment and divestiture charges, net in the Company's Consolidated Statements of Operations in connection with the divestiture and write-down to fair value less cost to sell of certain businesses that did not meet the criteria for discontinued operations.

Discontinued Operations

        During fiscal year 2007, Tyco completed the spin-offs of its Healthcare and Electronics businesses (the "Separation"). The Company has used available information to develop its best estimates for certain assets and liabilities related to the Separation. In limited instances, final determination of the balances will be made in subsequent periods. During the quarter ended December 26, 2008, the Company recorded an increase to shareholders' equity of $4 million primarily related to adjustments to certain pre-Separation tax liabilities. There were no adjustments during the quarter ended December 25, 2009. Adjustments in the future for the impact of filing final income tax returns in certain jurisdictions where those returns include a combination of Tyco, Covidien and/or Tyco Electronics legal entities and for certain amended income tax returns for the periods prior to the Separation may be recorded to either equity or the statement of operations depending on the specific item giving rise to the adjustment.

3.    Restructuring and Asset Impairment Charges, Net

2009 Program

        During fiscal 2009 and 2010, the Company identified and pursued opportunities for cost savings through restructuring activities and workforce reductions to improve operating efficiencies across the Company's businesses (the "2009 Program"). The Company expects such actions to be substantially completed by the end of fiscal 2010 and to incur restructuring and restructuring related charges of approximately $100 million to $150 million in fiscal 2010. During the quarter ended December 25,

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TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

3.    Restructuring and Asset Impairment Charges, Net (Continued)


2009, the Company incurred charges of $11 million. The Company has incurred $241 million of restructuring charges cumulative to date relating to the 2009 Program.

        Restructuring and asset impairment charges, net, during the quarters ended December 25, 2009 and December 26, 2008 related to the 2009 Program are as follows ($ in millions):

 
  For the Quarter Ended December 25, 2009  
 
  Employee
Severance
and
Benefits
  Facility
Exit and
Other
Charges
  Charges
Reflected in
SG&A
  Total  

ADT Worldwide

  $ 4   $ 1   $   $ 5  

Flow Control

    5     1         6  

Fire Protection Services

    2         1     3  

Safety Products

        (3 )       (3 )
                   

Total

  $ 11   $ (1 ) $ 1   $ 11  
                   

 

 
  For the Quarter Ended December 26, 2008  
 
  Employee
Severance
and
Benefits
  Charges
Reflected in
SG&A
  Total  

ADT Worldwide

  $   $ 2   $ 2  

Flow Control

    1         1  

Electrical and Metal Products

        1     1  
               

Total

  $ 1   $ 3   $ 4  
               

        Restructuring and asset impairment charges, net incurred cumulative to date from initiation of the 2009 Program are as follows ($ in millions):

 
  Employee
Severance
and
Benefits
  Facility
Exit and
Other
Charges
  Charges
Reflected in
Cost of Sales
  Charges
Reflected in
SG&A
  Total  

ADT Worldwide

  $ 70   $ 20   $ 9   $ 5   $ 104  

Flow Control

    23     5     3         31  

Fire Protection Services

    46     1         1     48  

Electrical and Metal Products

    10     2     7         19  

Safety Products

    23     (1 )   8         30  

Corporate and Other

    1     8             9  
                       

Total

  $ 173   $ 35   $ 27   $ 6   $ 241  
                       

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TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

3.    Restructuring and Asset Impairment Charges, Net (Continued)

        The rollforward of the reserves related to the 2009 Program from September 25, 2009 to December 25, 2009 is as follows ($ in millions):

Balance as of September 25, 2009

  $ 130  

Charges

    15  

Reversals

    (2 )

Utilization

    (33 )

Reclass/transfers

     

Currency translation

    (2 )
       

Balance as of December 25, 2009

  $ 108  
       

        Restructuring reserves for businesses that have met the held for sale criteria are included in liabilities held for sale on the Consolidated Balance Sheets and excluded from the table above. See Note 2.

2007 Program and pre-2006 Actions

        During fiscal 2007 and 2008, the Company launched a restructuring program across all of the Company's segments, including the corporate organization, to streamline some of the businesses and reduce the operational footprint (the "2007 Program"). As of December 26, 2008, the Company had substantially completed this program. The Company maintains a restructuring reserve related to the 2007 Program of $45 million and $59 million as of December 25, 2009 and September 25, 2009, respectively. The current period activity in the restructuring reserve balance primarily related to $13 million of cash payments. In addition, the Company continues to maintain restructuring reserves related to certain actions initiated prior to 2006. The total amount of these reserves are $15 million as of both December 25, 2009 and September 25, 2009. The aggregate remaining reserves related to the 2007 Program and pre-2006 actions include employee severance and benefits as well as facility exit costs for long-term non-cancelable lease obligations with expiration dates which range from 2010 to 2022 primarily within the Company's ADT Worldwide, Safety Products and Fire Protection Services segments. The Company incurred nil and $1 million related to the 2007 Program and pre-2006 actions during the quarters ended December 25, 2009 and December 26, 2008, respectively.

        At December 25, 2009 and September 25, 2009, restructuring reserves related to the 2009 Program, 2007 Program and pre-2006 actions, were included in the Company's Consolidated Balance Sheets as follows ($ in millions):

 
  December 25,
2009
  September 25,
2009
 

Accrued and other current liabilities

  $ 124   $ 159  

Other liabilities

    44     45  
           

Total

  $ 168   $ 204  
           

4.    Acquisitions

Acquisitions

        During the quarter ended December 25, 2009, cash paid for acquisitions included in continuing operations totaled $143 million, net of cash acquired of $1 million, which primarily related to the

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TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

4.    Acquisitions (Continued)


acquisition of two Brazilian valve companies, including Hiter Industria e Comercio de Controle Termo-Hidraulico Ltda ("Hiter"), a valve manufacturer which serves a variety of industries including the oil and gas, chemical and petrochemical markets. Net cash paid for the Brazilian valve companies totaled $104 million by the Company's Flow Control segment. In addition, the Company acquired certain assets of a business within its Electrical and Metal Products segment for $39 million.

        During the quarter ended December 26, 2008, cash paid for acquisitions included in continuing operations totaled $45 million, net of cash acquired of $1 million, which primarily related to the acquisition of Vue Technology, Inc., a provider of radio frequency identification (RFID) technology, for $43 million by the Company's Safety Products segment.

ADT Worldwide Account Acquisitions

        Tyco acquired approximately 129,000 and 130,000 customer contracts for electronic security services within the Company's ADT Worldwide segment for $150 million and $139 million during the quarters ended December 25, 2009 and December 26, 2008, respectively. Of these amounts, $150 million and $117 million was paid during the quarters ended December 25, 2009 and December 26, 2008, respectively.

5.    Income Taxes

        The Company did not have a significant change to its unrecognized tax benefits during the quarter ended December 25, 2009.

        Tyco's uncertain tax positions primarily relate to tax years that remain subject to audit by the taxing authorities in the U.S. federal, state and local or foreign jurisdictions. Open tax years in significant jurisdictions are as follows:

Jurisdiction
  Years Open To
Audit
 

United States

    1997-2009  

Australia

    2004-2009  

France

    1999-2009  

Germany

    1998-2009  

United Kingdom

    2000-2009  

Canada

    2000-2009  

        Based on the current status of its income tax audits, the Company believes that it is reasonably possible that between $25 million and $75 million in unrecognized tax benefits may be resolved in the next twelve months.

        At each balance sheet date, management evaluates whether it is more likely than not that the Company's deferred tax assets will be realized and if sufficient future taxable income will be available by assessing current period and projected operating results and other pertinent data. At December 25, 2009, the Company had recorded deferred tax assets of $1.5 billion, net of valuation allowances of $797 million. If current economic conditions persist or worsen, future taxable income of entities with deferred tax assets could be negatively impacted, which may require additional valuation allowances to be recorded in future reporting periods related to the Company's deferred tax assets.

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TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

5.    Income Taxes (Continued)

Tax Sharing Agreement

        In connection with the spin-offs of Covidien and Tyco Electronics from Tyco, Tyco entered into a Tax Sharing Agreement that generally governs Covidien's, Tyco Electronics' and Tyco's respective rights, responsibilities, and obligations after the Separation with respect to taxes, including ordinary course of business taxes and taxes, if any, incurred as a result of any failure of the distribution of all of the shares of Covidien or Tyco Electronics to qualify as a tax-free distribution for U.S. federal income tax purposes within the meaning of Section 355 of the Code or certain internal transactions undertaken in anticipation of the spin-offs to qualify for tax-favored treatment under the Code.

        Under the Tax Sharing Agreement, the Company shares responsibility for certain of Tyco's, Covidien's and Tyco Electronics' income tax liabilities, which result in cash payments, based on a sharing formula for periods prior to and including June 29, 2007. More specifically, Tyco, Covidien and Tyco Electronics 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 Tyco Electronics' U.S. and certain non-U.S. income tax returns. All costs and expenses associated with the management of these shared tax liabilities are shared equally among the parties. In conjunction with estimating its Tax Sharing obligations, Tyco has recorded a net receivable from Covidien and Tyco Electronics representing their estimated share of the Tax Sharing obligations of $115 million and $106 million, as of December 25, 2009 and September 25, 2009, respectively. As of December 25, 2009 and September 25, 2009, $112 million and $103 million, respectively, are included in other noncurrent assets and $3 million and $3 million, respectively, are included in prepaid expenses and other current assets. Other liabilities include $538 million and $554 million at December 25, 2009 and September 25, 2009, respectively, and accrued and other current liabilities include $16 million and nil at December 25, 2009 and September 25, 2009, respectively, for Tyco's obligations under the Tax Sharing Agreement. Tyco assesses the shared tax liabilities and related guaranteed liabilities at each reporting period. The receivable and liability were initially recognized with an offset to shareholders' equity in 2007. During the quarter ended December 25, 2009 and December 26, 2008, the Company recorded income of $9 million and $4 million, respectively, in accordance with the Tax Sharing agreement. Tyco will provide payment to Covidien and Tyco Electronics under the Tax Sharing Agreement as the shared income tax liabilities are settled. Settlement is expected to occur as the audit process by local taxing authorities is completed for the impacted years and cash payments are made. Given the nature of the shared liabilities, the maximum amount of potential future payments is not determinable. Such cash payments, when they occur, will reduce the guarantor liability as such payments represent an equivalent reduction of risk. The Company also assesses the sufficiency of the Tax Sharing Agreement guarantee liability on a quarterly basis and will increase the liability when it is probable that cash payments expected to be made under the Tax Sharing Agreement exceed the recorded balance.

        During the fourth quarter of 2009, the Company, as Audit Management Party under the Tax Sharing Agreement, reached a settlement agreement with the IRS on certain deductions taken by Tyco, Covidien and Tyco Electronics on pre-separation tax returns filed for the periods 2001 to 2004. The settlement did not have a material effect to the Company's results of operations, financial position or cash flows. Additionally, the Company considered the potential impact of the settlement as part of its quarterly assessment of the guarantee liability and concluded that no adjustment to the liability was needed.

        In the event the Separation is determined to be taxable and such determination was the result of actions taken after the Separation by Tyco, Covidien or Tyco Electronics, the party responsible for such failure would be responsible for all taxes imposed on each company as a result thereof. If such determination is not the result of actions taken by any of the three companies after the Separation,

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TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

5.    Income Taxes (Continued)

then Tyco, Covidien and Tyco Electronics would be responsible for 27%, 42% and 31%, respectively, of any taxes imposed on any of the companies as a result of such determination. Such tax amounts could be significant. The Company is responsible for all of its own taxes that are not shared pursuant to the Tax Sharing Agreement's sharing formula. In addition, Covidien and Tyco Electronics are responsible for their tax liabilities that are not subject to the Tax Sharing Agreement's sharing formula.

        If any party to the 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 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, the Company could be liable under applicable tax law for such liabilities and required to make additional tax payments. Accordingly, under certain circumstances, the Company may be obligated to pay amounts in excess of its agreed-upon share of Tyco's, Covidien's and Tyco Electronics' tax liabilities. See Note 16 for further discussion of guarantees and indemnifications extended between Tyco, Covidien and Tyco Electronics.

Other Income Tax Matters

        The Company and its subsidiaries' income tax returns are periodically examined by various tax authorities. In connection with these examinations, tax authorities, including the Internal Revenue Service ("IRS"), have raised issues and proposed tax adjustments. The Company is reviewing and contesting certain of the proposed tax adjustments. The Company has continuing dialog with the IRS related to these proposed adjustments with the objective of resolving some or all of these matters. Management has assessed the issues related to these adjustments and has recorded unrecognized tax benefits pursuant to the guidance for accounting for uncertain income tax positions. The ultimate resolution of these matters is uncertain and could result in a material impact to the Company's financial position, results of operations, cash flows or the effective tax rate in future reporting periods.

        In 2004, in connection with the IRS audit of the 1997 through 2000 years, the Company submitted to the IRS proposed adjustments to certain prior period U.S. federal income tax returns resulting in a reduction in the taxable income previously filed. During 2006, the IRS accepted substantially all of the proposed adjustments. Subsequently, the Company developed proposed amendments to U.S. federal income tax returns for additional periods through 2006. On the basis of previously accepted amendments, the Company has determined that these adjustments will more-likely-than-not be accepted and, accordingly, has recorded such adjustments in the Consolidated Financial Statements. Such adjustments did not have a material impact on the Company's financial condition, results of operations or cash flows. While the final adjustments cannot be determined until the IRS review is completed, the Company believes that any resulting adjustments will not have a material impact on its financial condition, results of operations or cash flows.

        The IRS proposed civil fraud penalties against a prior subsidiary that was distributed to Tyco Electronics in connection with the Separation. The penalties allegedly arise from actions of former executives taken in connection with intercompany transfers of stock of Simplex Technologies in 1998 and 1999. Based on statutory guidelines, the Company estimates the proposed penalties could range between $30 million and $50 million. The Company, as Audit Management Party as specified in the Tax Sharing Agreement, intends to vigorously oppose the assertion of any such penalties against Tyco Electronics, in part, because beginning in 2003 the Company discovered, investigated and reported the conduct at issue to the IRS and fully cooperated in the criminal prosecution of the Company's former Chief Tax Officer on a charge of willful filing of a false tax return. This is a pre-Separation shared tax matter under the Tax Sharing Agreement.

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TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

5.    Income Taxes (Continued)

        Except for earnings that are currently distributed, no additional material provision has been made for U.S. or non-U.S. income taxes on the undistributed earnings of subsidiaries or for unrecognized deferred tax liabilities for temporary differences related to investments in subsidiaries, since the earnings are expected to be permanently reinvested, the investments are essentially permanent in duration, or the Company has concluded that no additional tax liability will arise as a result of the distribution of such earnings. A liability could arise if amounts are distributed by such subsidiaries or if such subsidiaries are ultimately disposed. It is not practicable to estimate the additional income taxes related to permanently reinvested earnings or the basis differences related to investments in subsidiaries.

        The calculation of the Company's tax liabilities involves dealing with uncertainties in the application of complex tax regulations in a multitude of jurisdictions across the Company's global operations. The Company records tax liabilities for anticipated tax audit issues in the U.S. and other tax jurisdictions based on its estimate of whether, and the extent to which, additional taxes will be due. These tax liabilities are reflected net of related tax loss carryforwards. The Company adjusts 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 the Company's current estimate of the tax liabilities. If the Company's estimate of tax liabilities proves to be less than the ultimate assessment, an additional charge to expense would result. If payment of these amounts ultimately proves to be less than the recorded amounts, the reversal of the liabilities may result in income tax benefits being recognized in the period when the Company determines the liabilities are no longer necessary. Substantially all of these potential tax liabilities are recorded in other liabilities on the Consolidated Balance Sheets as payment is not expected within one year.

6.    Earnings Per Share

        As discussed in Note 1, the Company adopted the authoritative guidance for determining whether instruments granted in share-based payment transactions are participating securities in the first quarter of fiscal 2010. The Company historically issued certain restricted stock awards that vest over a period of three years which contained non-forfeitable rights to dividends and should be treated as participating securities. These types of awards were last issued during fiscal 2006. Awards containing such rights that are unvested are considered to be participating securities and are included in the computation of earnings per share pursuant to the two-class method. All of these awards were vested as of September 25, 2009. As a result, the Company was not required to compute earnings per share for the first quarter of fiscal 2010 using the two-class method. The retrospective application of this guidance did not have an impact on the Company's historically reported earnings per share for the quarter ended December 26, 2008.

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TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

6.    Earnings Per Share (Continued)

        The reconciliations between basic and diluted earnings per share attributable to Tyco common shareholders are as follows (in millions, except per share data):

 
  Quarter Ended
December 25, 2009
  Quarter Ended
December 26, 2008
 
 
  Income   Shares   Per Share
Amount
  Income   Shares   Per Share
Amount
 

Basic earnings per share attributable to Tyco common shareholders:

                                     
 

Income from continuing operations

  $ 302     476   $ 0.64   $ 272     473   $ 0.57  
 

Less: Income allocated to participating securities

    NA (1)             (2)          
 

Share options, restricted share awards and deferred stock units

        3               2        

Diluted earnings per share attributable to Tyco common shareholders:

                                     
 

Add: Income allocated to participating securities

    NA (1)             (2)          
                               

Income from continuing operations attributable to Tyco common shareholders, giving effect to dilutive adjustments

  $ 302     479   $ 0.63   $ 272     475   $ 0.57  
                           

(1)
The two-class method is not applicable for the quarter ended December 25, 2009 as all participating securities were vested as of September 25, 2009.

(2)
Income allocated to participating securities rounds to zero.

        The computation of diluted earnings per share for the quarters ended December 25, 2009 and December 26, 2008 excludes the effect of the potential exercise of options to purchase approximately 17 million shares and 25 million shares, respectively, and excludes restricted share awards of approximately 2 million shares and 6 million shares, respectively, because the effect would be anti-dilutive.

7.    Goodwill and Intangible Assets

        Annually, in the fiscal fourth quarter, and more frequently if triggering events occur, the Company tests goodwill for impairment by comparing the fair value of each reporting unit with its carrying amount. Fair value for each reporting unit is determined utilizing a discounted cash flow analysis based on the Company's forecasted cash flows discounted using an estimated weighted-average cost of capital of market participants. A market approach is utilized 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. In determining fair value, management relies on and considers a number of factors, including operating results, business plans, economic projections, cash flow forecasts, market data and the Company's overall market capitalization. Fair value determinations are sensitive to changes in the factors described above as well as to inherent uncertainties in applying them to the analysis of goodwill recoverability.

        During the first quarter of 2010, the Company continued to monitor the recoverability of its goodwill. The Company considered and evaluated its market capitalization as well as the other factors

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TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

7.    Goodwill and Intangible Assets (Continued)


described above and concluded its remaining goodwill balance of $8.8 billion as of December 25, 2009 is recoverable. As part of the Company's ongoing monitoring efforts, the Company will continue to consider the global economic environment and volatility in the stock market as well as in the Company's own stock price in assessing goodwill recoverability. Given the current economic environment and the uncertainties regarding the potential impact on the Company's business, there can be no assurance that the Company's estimates and assumptions regarding forecasted cash flow of certain reporting units as well as the duration of the ongoing economic downturn, or the period or strength of recovery, made for purposes of the annual goodwill impairment test performed during the fourth quarter of 2009, will prove to be accurate predictions of the future. If the Company's assumptions are not realized, it is possible that 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. At the last annual goodwill testing date, the Company had certain reporting units within the Company's ADT Worldwide and Safety Products segments with less than a ten percent excess of fair value over carrying value based on the discounted cash flow analyses. As discussed above, the Company monitored the recoverability of its goodwill and concluded none of the aforementioned reporting units experienced a triggering event which would require goodwill to be tested for impairment on an interim basis. The goodwill balance for these reporting units was approximately $839 million as of December 25, 2009.

        During the first quarter of fiscal 2010, businesses were realigned among the ADT Worldwide and Fire Protection Services segments, ADT Worldwide and Safety Products segments and Fire Protection Services and Safety Products segments. As a result of these realignments, goodwill was reallocated as detailed below. As part of the realignment the Company tested the related goodwill balances for recoverability and determined goodwill continues to be recoverable.

        The changes in the carrying amount of goodwill by segment are as follows ($ in millions):

 
  ADT
Worldwide
  Flow
Control
  Fire
Protection
Services
  Safety
Products
  Total  

Balance as of September 25, 2009

  $ 4,302   $ 1,993   $ 1,334   $ 1,162   $ 8,791  

Acquisitions

        70             70  

Divestitures

            (1 )   (9 )   (10 )

Goodwill transfer due to realignment

    113         23     (136 )    

Currency translation

    (27 )   (32 )       (6 )   (65 )
                       

Balance as of December 25, 2009

  $ 4,388   $ 2,031   $ 1,356   $ 1,011   $ 8,786  
                       

        Goodwill for reporting units that have met the held for sale criteria are included in assets held for sale on the Consolidated Balance Sheets and excluded from the table above. See Note 2.

        During the first quarter of 2010, the Company continued to monitor the recoverability of its indefinite lived intangible assets. Based on its evaluation, the Company concluded that its indefinite lived intangible asset balance of $305 million as of December 25, 2009 continues to be recoverable. Indefinite lived intangible assets consisting primarily of trade names are tested for impairment using the relief from royalty method. However, fair value determinations require considerable judgment and are sensitive to change. In light of current economic conditions and the downturn within the retail industry,

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TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

7.    Goodwill and Intangible Assets (Continued)


impairments to intangible assets could occur in future periods. However, it is not possible at this time to determine if an impairment charge would result or if such a charge would be material.

        The following table sets forth the gross carrying amount and accumulated amortization of the Company's intangible assets as of December 25, 2009 and September 25, 2009 ($ in millions):

 
  December 25, 2009   September 25, 2009
 
  Gross
Carrying
Amount
  Accumulated
Amortization
  Weighted Average
Amortization
Period
  Gross
Carrying
Amount
  Accumulated
Amortization
  Weighted Average
Amortization
Period

Amortizable:

                               
 

Contracts and related customer relationships

  $ 6,673   $ 4,386   14 years   $ 6,529   $ 4,275   14 years
 

Intellectual property

    552     469   20 years     552     462   20 years
 

Other

    49     13   14 years     17     13   10 years
                         
 

Total

  $ 7,274   $ 4,868   14 years   $ 7,098   $ 4,750   14 years
                         

Non-Amortizable:

                               
 

Intellectual property

  $ 218             $ 212          
 

Other

    87               87          
                             
 

Total

  $ 305             $ 299          
                             

        Intangible asset amortization expense for the quarters ended December 25, 2009 and December 26, 2008 was $129 million and $127 million, respectively.

        The estimated aggregate amortization expense on intangible assets is expected to be approximately $400 million for the remainder of 2010, $400 million for 2011, $350 million for 2012, $300 million for 2013, $250 million for 2014 and $200 million for 2015.

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TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

8.    Debt

        Debt was as follows ($ in millions):

 
  December 25,
2009
  September 25,
2009
 

Commercial paper(2)

  $   $ 200  

6.75% public notes due 2011

    516     516  

6.375% public notes due 2011

    849     849  

Revolving senior credit facility due 2011

         

Revolving senior credit facility due 2012

         

6.0% public notes due 2013

    655     655  

4.125% public notes due 2014

    498      

8.5% public notes due 2019

    750     750  

7.0% public notes due 2019

    433     434  

6.875% public notes due 2021

    716     716  

7.0% public notes due 2028

    7     14  

6.875% public notes due 2029

    21     21  

Other(1)(2)

    78     119  
           

Total debt

    4,523     4,274  

Less current portion

    17     245  
           

Long-term debt

  $ 4,506   $ 4,029  
           

(1)
$17 million of the amount shown as other, comprise the current portion of the Company's total debt as of December 25, 2009.

(2)
Commercial paper, plus $45 million of the amount shown as other, comprise the current portion of the Company's total debt as of September 25, 2009.

        The carrying amount of Tyco's debt subject to the fair value disclosure requirements as of December 25, 2009 and September 25, 2009 was $4,445 million and $4,155 million, respectively. The Company has determined the fair value of such debt to be $4,902 million and $4,578 million as of December 25, 2009 and September 25, 2009, respectively. The Company utilizes various valuation methodologies to determine the fair value of its debt which is primarily dependent on the type of market in which the Company's debt is traded. When available, the Company uses quoted market prices to determine the fair value of its debt which is traded in active markets. As of December 25, 2009 and September 25, 2009, the fair value of the Company's debt which is actively traded was $4,870 million and $4,338 million, respectively. When quoted market prices are not readily available or representative of fair value, the Company utilizes market information of comparable debt with similar terms, such as maturities, interest rates and credit risk to determine the fair value of its debt which is traded in markets that are not active. As of December 25, 2009 and September 25, 2009, the fair value of the Company's debt which is not actively traded was $32 million and $40 million, respectively. Additionally, the Company believes the carrying amount of its commercial paper of $200 million as of September 25, 2009 approximated fair value based on the short-term nature of such debt.

        In May 2008, Tyco International Finance S.A. ("TIFSA") commenced issuing 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 December 25, 2009

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

8.    Debt (Continued)


TIFSA had no commercial paper outstanding. As of September 25, 2009, TIFSA had $200 million of commercial paper outstanding, which bore interest at an average rate of 0.33%.

        On October 5, 2009, TIFSA issued $500 million aggregate principal amount of 4.125% notes due on October 15, 2014, which are fully and unconditionally guaranteed by the Company (the "2014 notes"). TIFSA received net proceeds of approximately $495 million after deducting debt issuance costs of approximately $3 million and a debt discount of approximately $2 million. The 2014 notes are unsecured and rank equally with TIFSA's other unsecured and unsubordinated debt. TIFSA may redeem any of the 2014 notes at any time by paying the greater of the principal amount of the notes or a "make-whole" amount, plus accrued and unpaid interest. The holders of the 2014 notes have the right to require TIFSA to repurchase all or a portion of the notes at a purchase price equal to 101% of the principal amount of the notes repurchased, plus accrued and unpaid interest upon the occurrence of a change of control triggering event, which requires both a change of control and rating event as defined by the Indenture governing the notes. The debt issuance costs will be amortized from the date of issuance to the maturity date, which is October 15, 2014. Interest is payable semiannually on April 15th and October 15th.

        The Company's total committed revolving credit line was $1.69 billion as of December 25, 2009. These revolving credit facilities may be used for working capital, capital expenditures and general corporate purposes. As of December 25, 2009, there were no amounts drawn under these facilities.

9.    Financial Instruments

        The Company's financial instruments consist primarily of cash and cash equivalents, accounts receivable, investments, accounts payable, debt and derivative financial instruments. The fair value of cash and cash equivalents, accounts receivable and accounts payable approximated book value as of December 25, 2009. See below for the fair value of investments and financial instruments and Note 8 for debt.

Derivative Instruments

        In the normal course of business, Tyco is exposed to market risk arising from changes in currency exchange rates, interest rates and commodity prices. The Company uses derivative financial instruments to manage exposures to foreign currency, interest rate and commodity price risks. The Company's objective for utilizing derivative financial instruments is to manage these risks using the most effective methods to eliminate or reduce the impacts of these exposures. During the first quarter of 2010, the Company entered into commodity swaps for copper which are not designated as hedging instruments for accounting purposes, which did not have a material impact on the Company's financial position, results of operations or cash flows.

        The Company manages foreign currency exchange rate risk through the use of derivative financial instruments comprised principally of forward contracts on foreign currency which are not designated as hedging instruments for accounting purposes. The objective of those derivatives instruments is to minimize the income statement impact and potential variability in cash flows associated with intercompany loans and accounts receivable, accounts payable and forecasted transactions that are denominated in certain foreign currencies. As previously reported, effective March 17, 2009, Tyco changed its jurisdiction of incorporation from Bermuda to Switzerland. Until January 1, 2011 Tyco intends to make dividend payments in the form of a reduction of capital, denominated in Swiss francs. However, the Company expects to actually pay

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

9.    Financial Instruments (Continued)


dividends in U.S. dollars, based on exchange rates in effect shortly before the payment date. Fluctuations in the value of the U.S. dollar compared to the Swiss franc between the date the dividend is declared and paid will increase or decrease the U.S. dollar amount required to be paid. The Company manages the potential variability in cash flows associated with the dividend payments by entering into derivative financial instruments used as economic hedges of the underlying risk.

        The Company manages interest rate risk through the use of interest rate swap transactions with financial institutions acting as principal counterparties, which are designated as fair value hedges for accounting purposes. During the third quarter of 2009 and the first quarter of 2010, the Company entered into interest rate swap transactions with the objective of managing the exposure to interest rate risk by converting the interest rates on $1.4 billion and $500 million, respectively, of fixed-rate debt to variable rates. In these contracts, the Company agrees with financial institutions acting as principal counterparties to exchange, at specified intervals, the difference between fixed and floating interest amounts calculated on an agreed-upon notional principal amount.

        For derivative instruments that are designated and qualify as fair value hedges, the Company documented the relationships between the hedging instruments and hedged items and linked derivatives designated as fair value hedges to specific debt issuances. For transactions designated as hedges, the Company also assessed and documented at the hedge's inception whether the derivatives used in hedging transactions were effective in offsetting changes in fair values associated with the hedged items. The fair value hedges did not result in any hedge ineffectiveness for the quarter ended December 25, 2009.

        The Company does not use derivative financial instruments for trading or speculative purposes.

        All derivative financial instruments are reported on the Consolidated Balance Sheet at fair value with changes in the fair value of the derivative financial instruments recognized currently in earnings.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

9.    Financial Instruments (Continued)

        The following tables summarize the fair value of derivative instruments and their location in the Consolidated Balance Sheets as of December 25, 2009 and September 25, 2009 ($ in millions).


Fair Values of Derivative Instruments

 
  Consolidated
Balance Sheet
Location
  Fair Value
as of
December 25,
2009
DR/(CR)
  Fair Value
as of
September 25,
2009
DR/(CR)
  Consolidated
Balance Sheet
Location
  Fair Value
as of
December 25,
2009
DR/(CR)
  Fair Value
as of September 25,
2009
DR/(CR)
 

Derivatives not designated as hedging
instruments:

                                 

Derivative foreign exchange contracts in an asset position(1)

 

Other Current

             

Other Current

             

  Assets   $ 15   $ 31   Liabilities   $   $ 1  

Derivative foreign exchange contracts in a liability position(1)

 

Other Current

             

Other Current

             

  Assets     (1 )   (1 ) Liabilities     (1 )   (6 )
                           

Net Asset/(Liability)

      $ 14     30       $ (1 )   (5 )
                           

Derivatives designated as hedging
instruments:

                                 

Derivative interest rate swap contracts

 

Other

             

Other

             

  Assets     5     3   Liabilities     (2 )    
                           

Total Asset/(Liability)

      $ 19   $ 33       $ (3 ) $ (5 )
                           

(1)
The Company nets derivative assets and liabilities when aggregating derivative contracts for presentation in the Consolidated Financial Statements if certain criteria are met. The table above presents such contracts on a gross basis.

        The following tables summarize the amount of gain (loss) recognized in earnings on derivative instruments and their location in the Consolidated Statements of Operations for the quarter ended December 25, 2009 ($ in millions).


The Effect of Derivative Instruments on the Consolidated Statements of Operations

 
   
  Amount of Gain (Loss)
Recognized in Earning on Derivatives

 
Derivatives not designated as hedging
instruments:
  Location of Gain or
(Loss) Recognized in
Earnings on Derivative
  For the
Quarter Ended
December 25, 2009
 

Foreign Exchange Contracts(1)

  Selling, general and
administrative expenses
  $ 3  

Foreign Exchange Contracts(2)

  Other income
(expense), net
  $ (1 )

(1)
Includes economic hedges related to operating activities

(2)
Includes economic hedges related to dividends declared in Swiss francs

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

9.    Financial Instruments (Continued)

        As of December 25, 2009 and September 25, 2009, the total gross notional amount of the Company's foreign exchange contracts was $409 million and $525 million, respectively.

Derivatives designated as hedging
instruments:
  Location of Gain or
(Loss) Recognized in
Earnings on Derivative
  Amount of Gain (Loss)
Recognized in Earnings on Derivatives
For the
Quarter Ended
December 25, 2009
 

Interest Rate Swap Contracts(1)

  Interest expense   $ 3  

(1)
The gain or loss on the derivative as well as the offsetting loss or gain on the hedged item attributable to the hedged risk are recognized in current earnings. The Company includes the gain or loss on the hedged item in the same line item, interest expense, as the offsetting loss or gain on the related interest rate swaps. For the quarter ended December 25, 2009, the Company recognized a $3 million loss on the underlying debt issuances.

        As of December 25, 2009 and September 25, 2009, the total gross notional amount of the Company's interest rate swap contracts was $1.9 billion and $1.4 billion, respectively.

Counterparty Credit Risk

        The use of derivative financial instruments exposes the Company to counterparty credit risk. If the counterparty fails to perform, the Company is exposed to losses if the derivative is in an asset position. When the fair value of a derivative instrument is an asset, the counterparty has to pay the Company to settle the contract. This exposes the Company to credit risk. However, when the fair value of a derivative instrument is a liability, the Company has to pay the counterparty to settle the contract and therefore there is no counterparty credit risk. Tyco has established policies and procedures to limit the potential for counterparty credit risk, including establishing limits for credit exposure and continually assessing the creditworthiness of counterparties. As a matter of practice, the Company deals with major banks worldwide having long-term Standard & Poor's and Moody's credit ratings of A-/A3 or higher. To further reduce the risk of loss, the Company generally enters into International Swaps and Derivatives Association master agreements with substantially all of its counterparties. Master netting agreements provide protection in bankruptcy in certain circumstances and, in some cases, enable receivables and payables with the same counterparty to be offset on the Consolidated Balance Sheets, providing for a more meaningful balance sheet presentation of credit exposure. The Company's derivative contracts do not contain any credit risk related contingent features and do not require collateral or other security to be furnished by the Company or the counterparties.

        The Company's exposure to credit risk associated with its derivative instruments is measured on an individual counterparty basis, as well as by groups of counterparties that share similar attributes. As of December 25, 2009, the Company was exposed to industry concentration with financial institutions as well as risk of loss if an individual counterparty or issuer failed to perform its obligations under contractual terms. The maximum amount of loss that the Company would incur as of December 25, 2009 without giving consideration to the effects of legally enforceable master netting agreements, is approximately $20 million.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

9.    Financial Instruments (Continued)

Fair Value of Financial Instruments

        Authoritative guidance for fair value measurements establishes a three-level hierarchy that ranks the quality and reliability of information used in developing fair value estimates. The hierarchy gives the highest priority to quoted prices in active markets and the lowest priority to unobservable data. In cases where two or more levels of inputs are used to determine fair value, a financial instrument's level is determined based on the lowest level input that is considered significant to the fair value measurement in its entirety. The three levels of the fair value hierarchy are summarized as follows:

    Level 1—inputs are based upon quoted prices (unadjusted) in active markets for identical assets or liabilities which are accessible as of the measurement date.

    Level 2—inputs are based upon quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, and model-derived valuations for the asset or liability that are derived principally from or corroborated by market data for which the primary inputs are observable, including forward interest rates, yield curves, credit risk and exchange rates.

    Level 3—inputs for the valuations are unobservable and are based on management's estimates of assumptions that market participants would use in pricing the asset or liability. The fair values are therefore determined using model-based techniques such as option pricing models and discounted cash flow models.

Investments

        Investments primarily include cash equivalents, U.S. government obligations, U.S. government agency securities and corporate debt securities.

        When available, the Company uses quoted market prices to determine the fair value of investment securities. Such investments are included in Level 1. When quoted market prices are not readily available, pricing determinations are made based on the results of valuation models using observable market data such as recently reported trades, bid and offer information and benchmark securities. These investments are included in Level 2 and consist primarily of U.S. government agency securities and corporate debt securities.

Derivative Financial Instruments

        As described above, under the caption "Derivative Instruments" derivative assets and liabilities consist principally of forward foreign currency exchange contracts and interest rate swaps. The fair values for these derivative financial instruments are derived from pricing models that take into account the contractual terms and features of each instrument, forward foreign currency rates for the Company's foreign exchange contracts and yield curves for the Company's interest rate swaps existing at the end of the period. Valuations are adjusted to reflect creditworthiness of the counterparty for assets and the creditworthiness of the Company for liabilities. Such adjustments are based on observable market evidence and are categorized as Level 2 exposures.

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TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

9.    Financial Instruments (Continued)

Assets and Liabilities Measured at Fair Value on a Recurring Basis

        The following tables present the Company's assets and liabilities measured at fair value on a recurring basis as of December 25, 2009 and September 25, 2009 by level within the fair value hierarchy. Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the valuation.

 
  As of December 25, 2009  
($ in millions)
  Level 1   Level 2   Total  

Assets

                   

Available-for-Sale Securities

  $ 64   $ 273   $ 337  

Derivative foreign exchange contracts in an asset position(1)

        14     14  

Derivative interest rate swap contracts

        5     5  
               
 

Total

  $ 64   $ 292   $ 356  
               

Liabilities

                   

Derivative foreign exchange contracts in a liability position(1)

  $   $ (1 ) $ (1 )

Derivative interest rate swap contracts

        (2 )   (2 )
               
 

Total

        (3 )   (3 )
               

 
  As of September 25, 2009  
($ in millions)
  Level 1   Level 2   Total  

Assets

                   

Available-for-sale securities

  $ 60   $ 280   $ 340  

Derivative foreign exchange contracts in an asset position(1)

        30     30  

Derivative interest rate swap contracts

        3     3  
               
 

Total

  $ 60   $ 313   $ 373  
               

Liabilities

                   

Derivative foreign exchange contracts in a liability position(1)

  $   $ (5 ) $ (5 )
               

(1)
The Company nets derivative assets and liabilities when aggregating derivative contracts for presentation in the Consolidated Financial Statements if certain criteria are met. These amounts include fair value adjustments related to the Company's own credit risk and counterparty credit risk.

Other

        The Company has $3.0 billion of intercompany loans designated as permanent in nature as of December 25, 2009 and September 25, 2009, respectively. For the quarters ended December 25, 2009 and December 26, 2008, the Company recorded $37 million and $325 million, respectively, of cumulative transaction loss through accumulated other comprehensive (loss) related to these loans.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

10.    Commitments and Contingencies

        In connection with the Separation, the Company entered into a liability sharing agreement regarding certain legal actions that were pending against Tyco prior to the Separation. Under the Separation and Distribution Agreement, the Company, Covidien and Tyco Electronics are jointly and severally liable for the full amount of any judgments resulting from the actions subject to the agreement, which generally relate to legacy matters that are not specific to the business operations of any of the companies. The Separation and Distribution Agreement also provides that the Company will be responsible for 27%, Covidien 42% and Tyco Electronics 31% of payments to resolve these matters, with costs and expenses associated with the management of these contingencies being shared equally among the parties. In addition, under the agreement, the Company will manage and control all the legal matters related to assumed contingent liabilities as described in the Separation and Distribution Agreement, including the defense or settlement thereof, subject to certain limitations. Additionally, at the time of the Separation, the Company, Covidien and Tyco Electronics agreed to allocate responsibility for certain legacy tax claims pursuant to the same formula under the Tax Sharing Agreement. See Note 5.

Legacy Securities Matters

        As previously reported, Tyco and some members of the Company's former senior corporate management are named defendants in a number of lawsuits alleging violations of the disclosure provisions of the federal securities laws. In June 2007, the Company settled 32 purported securities class action lawsuits arising from actions alleged to have been taken by prior management. The June 2007 class action settlement did not purport to resolve all legacy securities cases.

        During the second quarter of 2009, the Company concluded that its best estimate of probable loss for the legacy securities matters outstanding at the time was $375 million in the aggregate, which the Company recorded as a liability in accrued and other current liabilities in the Consolidated Balance Sheet as of March 27, 2009. Due to the sharing provisions in the Separation and Distribution Agreement, the Company also recorded receivables from Covidien and Tyco Electronics in the amounts of $158 million and $116 million, respectively, which were recorded in other current assets in the Company's Consolidated Balance Sheet as of March 27, 2009. As a result, the Company recorded a net charge of $101 million related to legacy securities matters during the quarter ended March 27, 2009 in selling, general, and administrative expenses in the Consolidated Statements of Operations.

        In the second half of fiscal 2009, the Company agreed to settle with all of the remaining plaintiffs that had opted-out of the class action settlement as well as plaintiffs who had brought ERISA related claims for a total of $271 million. Pursuant to the Separation and Distribution Agreement, the Company's share of the settlement amount was approximately $73 million, with Covidien and Tyco Electronics responsible for approximately $114 million and $84 million, respectively. This settlement activity did not result in the Company recording a charge to its Consolidated Statements of Operations as the Company had established a reserve for its best estimate of the amount of loss during the second quarter of 2009 as discussed above. Since the June 2007 class action settlement, the Company has resolved all of its significant legal claims stemming from allegations of securities laws violations, with the exception of the matters noted below.

        The most significant outstanding legacy securities matter is Stumpf v. Tyco International Ltd., which is a class action lawsuit in which the plaintiffs allege that Tyco, among others, violated the disclosure provisions of the federal securities laws. The matter arises from Tyco's July 2000 initial public offering

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

10.    Commitments and Contingencies (Continued)


of common stock of TyCom Inc, and alleges that the TyCom registration statement and prospectus relating to the sale of common stock were inaccurate, misleading and failed to disclose facts necessary to make the registration statement and prospectus not misleading. The complaint further alleges the defendants violated securities laws by making materially false and misleading statements and omissions concerning, among other things, executive compensation, TyCom's business prospects and Tyco's and TyCom's finances. The matter is currently in the pre-trial stages of litigation and Tyco intends to vigorously defend this action.

        In addition to the Stumpf matter, Tyco is a party to several lawsuits involving disputes with former management, among which are affirmative cases brought by Tyco against Mr. Dennis L. Kozlowski, Tyco's former chief executive officer, Mr. Mark Swartz, its former chief financial officer, and Mr. Frank Walsh Jr., a former director. In connection with these affirmative actions, Messrs. Kozlowski and Swartz have made claims seeking amounts allegedly due in connection with their compensation and retention arrangements and under ERISA, and Mr. Walsh has made claims alleging that Tyco is required to indemnify him for his defense costs arising from his role as a Tyco director. Tyco intends to vigorously defend each of these actions.

        Tyco has reserved its best estimate of probable loss for these legacy matters. However, their ultimate resolution could differ materially from these estimates and could have a material adverse effect on Tyco's financial position, results of operations or cash flows.

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 December 25, 2009, Tyco concluded that it was probable that it would incur remedial costs in the range of approximately $28 million to $84 million. As of December 25, 2009, Tyco concluded that the best estimate within this range is approximately $37 million, of which $10 million is included in accrued and other current liabilities and $27 million is included in other liabilities in the Company's Consolidated Balance Sheet. In view of the Company's financial position and reserves for environmental matters, the Company believes that any potential payments of such estimated amounts will not have a material adverse effect on its financial position, results of operations or cash flows.

Asbestos Matters

        The Company and certain of its subsidiaries 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 strategy has been, and continues to be, to mount a vigorous defense aimed at having unsubstantiated suits dismissed, and, where appropriate, settling suits before trial. Although a large

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

10.    Commitments and Contingencies (Continued)


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. Of the lawsuits that have proceeded to trial since 2005, the Company has won or settled all but one case, with that one case returning an adverse jury verdict for approximately $7.7 million, which included both compensatory and punitive damages. The Company has appealed the verdict and believes that it will ultimately be overturned. As of September 25, 2009 and December 25, 2009, there were approximately 4,200 lawsuits pending against the Company and its subsidiaries. Each lawsuit typically includes several claims, and the Company has determined that it had approximately 5,500 claims outstanding as of September 25, 2009, which reflects adjustments for claims that are not actively being prosecuted, identify incorrect defendants or are duplicative of other actions. The number of claims has not significantly changed since September 25, 2009.

        Annually, the Company performs an analysis to update its estimated asbestos-related assets and liabilities. The Company's estimate of the liability and corresponding insurance recovery for pending and future claims and defense costs is based on claim experience over the past five years and covers claims expected to be filed, including related defense costs, over the next seven years on an undiscounted basis. Due to a high degree of uncertainty regarding the pattern and length of time over which claims will be made and other factors, the Company has concluded that estimating the liability beyond the seven year period will not provide a reasonable estimate. 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 available insurance, allocation methodologies, solvency and creditworthiness of the insurers.

        As of December 25, 2009, the Company's estimated net liability of $58 million was recorded within the Company's Consolidated Balance Sheet as a liability for pending and future claims and related defense costs of $235 million, and separately as an asset for insurance recoveries of $177 million.

        The amounts recorded by the Company for asbestos-related liabilities and insurance-related assets are based on currently available information as well as 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, and the solvency risk with respect to the Company's insurance carriers. 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 insurance policies among subsidiaries. The Company believes that its asbestos-related reserves as of December 25, 2009 are appropriate. However 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.

Compliance Matters

        As previously reported in the Company's periodic filings, the Company has received and responded to various allegations and other information that certain improper payments were made by the Company's subsidiaries and agents in recent years. For example, two subsidiaries in the Company's Flow Control business in Italy have been charged, along with numerous other parties, in connection

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

10.    Commitments and Contingencies (Continued)


with the Milan public prosecutor's investigation into allegedly improper payments made to certain Italian entities, and the Company has reported to German authorities potentially improper conduct involving agents retained by the Company's EMEA water business. The Company has reported to the U.S. Department of Justice ("DOJ") and the SEC the investigative steps and remedial measures that it has taken in response to these allegations and its internal investigations. The Company also informed the DOJ and the SEC that it has retained outside counsel to perform a Company-wide baseline review of its policies, controls and practices with respect to compliance with the Foreign Corrupt Practices Act ("FCPA"), and that it would continue to investigate and make periodic progress reports to these agencies. The Company has and will continue to communicate with the DOJ and SEC to provide updates on the baseline review and follow-up investigations, including, as appropriate, briefings concerning additional instances of potential improper conduct identified by the Company in the course of its ongoing compliance activities. The baseline review, which has been substantially completed, has revealed that some business practices may not comply with Tyco and FCPA requirements, and the Company has initiated discussions with the DOJ and SEC aimed at resolving these matters. While these discussions are ongoing, the Company cannot predict their outcome and cannot estimate the range of potential loss or the form of penalty, if any, that may result from an adverse resolution. It is possible that the Company may be required to pay material fines, consent to injunctions on future conduct, or suffer other criminal or civil penalties or adverse impacts, each of which could have a material adverse effect on the Company's financial position, results of operations or cash flows.

        Covidien and Tyco Electronics agreed, in connection with the Separation, to cooperate with the Company in its responses regarding these matters. Any judgment required to be paid or settlement or other cost incurred by the Company in connection with the FCPA investigations matters would be subject to the liability sharing provisions of the Separation and Distribution Agreement, which assigned liabilities primarily related to the former Healthcare and Electronics businesses of the Company to Covidien and Tyco Electronics, respectively, and provides that the Company will retain liabilities primarily related to its continuing operations. Any liabilities not primarily related to a particular segment will be shared equally among the Company, Covidien and Tyco Electronics.

        The German Federal Cartel Office ("FCO") charged in early 2007 that certain German subsidiaries in the Company's Flow Control business had engaged in anti-competitive practices, in particular with regard to its hydrant, valve, street box and fittings business. The Company investigated this matter and determined that the conduct may have violated German anti-trust law. The Company is cooperating with the FCO in its investigation of this violation, which is ongoing. The Company cannot estimate the range of potential loss that may result from this violation. It is possible that the Company may be subject to civil or criminal proceedings and may be required to pay judgments, suffer penalties or incur settlements in amounts that may have a material adverse effect on its financial position, results of operations or cash flows.

ERISA Partial Withdrawal Liability Assessment and Demand

        On June 8, 2007, SimplexGrinnell received a notice alleging that it had partially withdrawn from the National Automatic Sprinkler Industry Pension Fund (the "Fund"). Under Title IV of ERISA, if the Fund can prove that an employer completely or partially withdraws from a multi-employer pension plan such as the Fund, the employer is liable for withdrawal liability equal to its proportionate share of the plan's unfunded vested benefits. The alleged withdrawal results from a 1994 labor dispute between

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

10.    Commitments and Contingencies (Continued)


Grinnell Fire Protection Systems, SimplexGrinnell's predecessor, and Road Sprinkler Fitters Local Union No. 669.

        ERISA requires that payment of withdrawal liability be made in full or in quarterly installments commencing upon receipt of a liability assessment from the plan. A plan's assessment of withdrawal liability generally may be challenged only in arbitration, and ERISA requires that quarterly payments must continue to be made during the pendency of the arbitration. If the employer prevails in arbitration (and any subsequent appeals), its quarterly withdrawal liability payments are refunded with interest. The Fund's total withdrawal liability assessment against SimplexGrinnell is approximately $25 million. The quarterly withdrawal liability payments are $1.1 million, $12.1 million of which had been paid to date. While the ultimate outcome is uncertain, SimplexGrinnell believes that it has strong arguments that no withdrawal liability is owed to the Fund, and it plans to vigorously defend against the Fund's withdrawal liability assessment. The matter is currently in arbitration. The Company has made no provision for this contingency and believes that its quarterly payments are recoverable.

Other Matters

        As previously reported, in 2002, the SEC's Division of Enforcement conducted an investigation related to past accounting practices for dealer connect fees that ADT had charged to its authorized dealers upon purchasing customer accounts. The investigation related to accounting practices employed by the Company's former management, which were discontinued in 2003. Although the Company settled with the SEC in 2006, a number of former dealers and related parties have filed lawsuits against the Company, including a class action lawsuit filed in the District Court of Arapahoe County, Colorado, alleging breach of contract and other claims related to ADT's decision to terminate certain authorized dealers in 2002 and 2003. The trial is scheduled to begin in February 2010. While it is not possible at this time to predict the final outcome of these lawsuits, the Company does not believe these claims will have a material adverse effect on the Company's financial position, results of operations or cash flows.

        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.

11.    Retirement Plans

        Defined Benefit Pension Plans—The Company adopted the measurement date provisions of the authoritative guidance for the employers' accounting for defined benefit pension and other postretirement plans on September 27, 2008. As a result, Tyco measured its plan assets and benefit obligations on September 26, 2008 and adjusted its opening balances of accumulated (deficit) earnings and accumulated other comprehensive (loss) income for the change in net periodic benefit cost and fair value, respectively, from the previously used measurement date of August 31, 2008. The adoption of the measurement date provisions resulted in a net decrease to accumulated earnings of $5 million, net

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TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

11.    Retirement Plans (Continued)


of an income tax benefit of $2 million, and a net increase to accumulated other comprehensive income (loss) of $61 million, net of income taxes of $28 million.

        The Company sponsors a number of pension plans. The following disclosures exclude the impact of plans which are immaterial individually and in the aggregate. The net periodic benefit cost for the Company's material U.S. and non-U.S. defined benefit pension plans is as follows ($ in millions):

 
  U.S. Plans
  Non-U.S. Plans
 
 
  For the Quarters Ended   For the Quarters Ending  
 
  December 25,
2009
  December 26,
2008
  December 25,
2009
  December 26,
2008
 

Service cost

  $ 2   $ 3   $ 7   $ 9  

Interest cost

    12     12     19     20  

Expected return on plan assets

    (12 )   (12 )   (17 )   (18 )

Amortization of prior service cost

            (1 )   (1 )

Amortization of net actuarial loss

    7     2     7     5  
                   

Net periodic benefit cost

  $ 9   $ 5   $ 15   $ 15  
                   

        The estimated net loss and prior service cost for U.S. pension benefit plans that will be amortized from accumulated other comprehensive income (loss) into net periodic benefit cost over the current fiscal year are expected to be $26 million and $1 million, respectively.

        The estimated net loss and prior service credit for non-U.S. pension benefit plans that will be amortized from accumulated other comprehensive income (loss) into net periodic benefit cost over the current fiscal year are expected to be $29 million and $3 million, respectively.

        The Company's funding policy is to make contributions in accordance with the laws and customs of the various countries in which it operates as well as to make discretionary voluntary contributions from time-to-time. The Company anticipates that it will contribute at least the minimum required to its pension plans in fiscal year 2010 of $4 million for U.S. plans and $76 million for non-U.S. plans.

        Postretirement Benefit Plans—Net periodic postretirement benefit cost was insignificant for both periods.

12.    Share Plans

        During the quarter ended December 25, 2009, the Company issued its annual share-based compensation grants. The total number of awards issued was approximately 6 million, of which 4 million were share options, 1 million were restricted unit awards and 1 million were performance share unit awards. The options and restricted stock units vest in equal annual installments over a period of 4 years, and the performance share unit awards vest after a period of 3 years based on the level of attainment of the applicable performance metrics, which are determined by the Compensation and Human Resources Committee of the Board. The weighted-average grant-date fair value of the share options, restricted unit awards and performance share unit awards was $9.17, $33.75 and $40.19, respectively. The weighted-average assumptions used in the Black-Scholes option pricing model included an expected stock price volatility of 34%, a risk free interest rate of 2.47%, an expected annual dividend per share of $0.80 and an expected option life of 5.4 years.

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TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

12.    Share Plans (Continued)

        During the quarter ended December 26, 2008, the Company issued its annual share-based compensation grants. The total number of awards issued were approximately 8 million, of which 5 million were share options, 2 million were restricted unit awards and 1 million were performance share unit awards. The options and restricted stock units vest in equal annual installments over a period of 4 years, and the performance share unit awards vest after a period of 3 years based on the level of attainment of the applicable performance metrics, which are determined by the Compensation and Human Resources Committee of the Board. The weighted-average grant-date fair value of the share options, restricted unit awards and performance share unit awards was $7.15, $29.00 and $27.84, respectively. The weighted-average assumptions used in the Black-Scholes option pricing model included an expected stock price volatility of 32%, a risk free interest rate of 2.71%, an expected annual dividend per share of $0.80 and an expected option life of 5.2 years.

13.    Consolidated Segment Data

        The Company, from time to time, may realign businesses and management responsibility within its operating segments based on considerations such as opportunity for market or operating synergies and/or to more fully leverage existing capabilities and enhance development for future products and services. During the first quarter of fiscal 2010, the manufacturing operations which support the ADT retail business, historically included in the Safety Products segment, were transferred to the ADT Worldwide segment. In addition, certain smaller businesses were transferred between segments; from the Company's Safety Products segment to the Company's Fire Protection Services segment in Asia Pacific; from the Company's Fire Protection Services segment to the Company's ADT Worldwide segment in EMEA and Latin America. Further, certain overhead costs were transferred from Corporate and Other to the Company's ADT Worldwide segment. As a result of the realignment of these business activities, the revenue and operating income for the period ending December 26, 2008 have been recast to reflect the realignments discussed above. Selected information by segment is presented in the following tables ($ in millions):

 
  For the Quarters Ended  
 
  December 25,
2009
  December 26,
2008
 

Net revenue(1):

             
 

ADT Worldwide

  $ 1,835   $ 1,811  
 

Flow Control

    923     959  
 

Fire Protection Services

    833     839  
 

Electrical and Metal Products

    297     416  
 

Safety Products

    358     401  
 

Corporate and Other

         
           
 

Net revenue

  $ 4,246   $ 4,426  
           

(1)
Revenue by operating segment excludes intercompany transactions.

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TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

13.    Consolidated Segment Data (Continued)

 
  For the Quarters Ended  
 
  December 25,
2009
  December 26,
2008
 

Operating income:

             
 

ADT Worldwide

  $ 259   $ 227  
 

Flow Control

    112     137  
 

Fire Protection Services

    64     56  
 

Electrical and Metal Products

    23     27  
 

Safety Products

    54     80  
 

Corporate and Other

    (98 )   (114 )
           
 

Operating income

  $ 414   $ 413  
           

14.    Inventory

        Inventories consisted of the following ($ in millions):

 
  December 25,
2009
  September 25,
2009
 

Purchased materials and manufactured parts

  $ 525   $ 514  

Work in process

    214     207  

Finished goods

    745     722  
           
 

Inventories

  $ 1,484   $ 1,443  
           

        Inventories are recorded at the lower of cost (primarily first-in, first-out) or market value.

15.    Property, Plant and Equipment

        Property, plant and equipment consisted of the following ($ in millions):

 
  December 25,
2009
  September 25,
2009
 

Land

  $ 156   $ 156  

Buildings

    785     788  

Subscriber systems

    5,374     5,309  

Machinery and equipment

    2,426     2,398  

Property under capital leases(1)

    63     62  

Construction in progress

    170     164  

Accumulated depreciation(2)

    (5,468 )   (5,380 )
           
 

Property, Plant and Equipment, net

  $ 3,506   $ 3,497  
           

(1)
Property under capital leases consists primarily of buildings.

(2)
Accumulated amortization of capital lease assets was $30 million and $28 million at December 25, 2009 and September 25, 2009, respectively.

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TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

16.    Guarantees

        Certain of the Company's 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 the Company's financial position, results of operations or cash flows.

        There are certain guarantees or indemnifications extended among Tyco, Covidien and Tyco Electronics in accordance with the terms of the Separation and Distribution Agreement and the Tax Sharing Agreement. The guarantees primarily relate to certain contingent tax liabilities included in the Tax Sharing Agreement. At the time of the Separation, Tyco recorded a liability necessary to recognize the fair value of such guarantees and indemnifications. In the absence of observable transactions for identical or similar guarantees, the Company determined the fair value of these guarantees and indemnifications utilizing expected present value measurement techniques. Significant assumptions utilized to determine fair value included determining a range of potential outcomes, assigning a probability weighting to each potential outcome and estimating the anticipated timing of resolution. The probability weighted outcomes were discounted using the Company's incremental borrowing rate. The liability necessary to reflect the fair value of the guarantees and indemnifications under the Tax Sharing Agreement is $554 million (of which $16 million is included in accrued and other current liabilities and the remaining amount in other liabilities) on the Company's Consolidated Balance Sheet as of December 25, 2009. The liability was $554 as of September 25, 2009, which was recorded in other liabilities on the Company's Consolidated Balance Sheet. The guarantees primarily relate to certain contingent tax liabilities included in the Tax Sharing Agreement. See Note 5 for further discussion of the Tax Sharing Agreement.

        In addition, Tyco historically provided support in the form of financial and/or performance guarantees to various Covidien and Tyco Electronics operating entities. In connection with the Separation, the Company worked with the guarantee counterparties to cancel or assign these guarantees to Covidien or Tyco Electronics. To the extent these guarantees were not assigned prior to the Separation date, Tyco assumed primary liability on any remaining such support. The estimated fair value of these obligations is $4 million, which are included in other liabilities on the Company's Consolidated Balance Sheets as of December 25, 2009 and September 25, 2009, respectively, with an offset to shareholders' equity on the Separation date.

        In disposing of assets or businesses, the Company often provides 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 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. The Company has no reason to believe that these uncertainties would have a material adverse effect on the Company's financial position, results of operations or cash flows.

        The Company has recorded liabilities for known indemnifications included as part of environmental liabilities. See Note 10 for a discussion of these liabilities.

        In the normal course of business, the Company is liable for contract completion and product performance. In the opinion of management, such obligations will not significantly affect the Company's financial position, results of operations or cash flows.

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TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

16.    Guarantees (Continued)

        The Company records estimated product warranty costs at the time of sale. The changes in the carrying amount of the Company's warranty accrual for the quarter ended December 25, 2009 were as follows ($ in millions):

Balance as of September 25, 2009

  $ 81  

Warranties issued

    10  

Changes in estimates

    (4 )

Settlements

    (9 )

Currency translation

    (1 )
       

Balance as of December 25, 2009

  $ 77  
       

        Warranty accruals for businesses that have met the held for sale criteria are included in liabilities held for sale on the Consolidated Balance Sheets and excluded from the table above. See Note 2.

        In 2001, a division of Safety Products initiated a Voluntary Replacement Program ("VRP") associated with the acquisition of Central Sprinkler. The VRP relates to the replacement of certain O-ring seal sprinkler heads which were originally manufactured by Central Sprinkler prior to Tyco's acquisition. Under this program, the sprinkler heads are being replaced free of charge to property owners. On May 1, 2007, the Consumer Product Safety Commission and the Company announced an August 31, 2007 deadline for filing claims to participate in the VRP. The Company will fulfill all valid claims for replacement of qualifying sprinklers received up to August 31, 2007. Settlements during the quarter ended December 25, 2009 include cash expenditures of $4 million related to the VRP. The Company believes the remaining liability represents its best estimate of the cost required to complete the VRP as of December 25, 2009, which is not material.

17.    Tyco International Finance S.A.

        TIFSA, a wholly-owned subsidiary of the Company, has public debt securities outstanding (see Note 8) which are fully and unconditionally guaranteed by Tyco. The following tables present condensed consolidating financial information for Tyco, TIFSA and all other subsidiaries. Condensed financial information for Tyco and TIFSA on a stand-alone basis is presented using the equity method of accounting for subsidiaries.

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TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

17.    Tyco International Finance S.A. (Continued)


CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

For the Quarter Ended December 25, 2009

($ in millions)

 
  Tyco
International
Ltd.
  Tyco
International
Finance S.A.
  Other
Subsidiaries
  Consolidating
Adjustments
  Total  

Net revenue

  $   $   $ 4,246   $   $ 4,246  

Cost of product sales and services

            2,681         2,681  

Selling, general and administrative expenses

    4     1     1,135         1,140  

Restructuring, asset impairment and divestiture charges, net

            11         11  
                       
 

Operating (loss) income

    (4 )   (1 )   419         414  

Interest income

            9         9  

Interest expense

        (73 )   (3 )       (76 )

Other income, net

    9                 9  

Equity in net income of subsidiaries

    631     310         (941 )    

Intercompany interest and fees

    (334 )   15     319          
                       
 

Income from continuing operations before income taxes

    302     251     744     (941 )   356  

Income tax benefit (expense)

        18     (71 )       (53 )
                       
 

Income from continuing operations

    302     269     673     (941 )   303  

Income from discontinued operations, net of income taxes

                     
                       
 

Net income

    302     269     673     (941 )   303  

Less: noncontrolling interest in subsidiaries net income

            1         1  
                       
 

Net income attributable to Tyco common shareholders

  $ 302   $ 269   $ 672   $ (941 ) $ 302  
                       

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TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

17.    Tyco International Finance S.A. (Continued)


CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

For the Quarter Ended December 26, 2008

($ in millions)

 
  Tyco
International
Ltd.
  Tyco
International
Finance S.A.
  Other
Subsidiaries
  Consolidating
Adjustments
  Total  

Net revenue

  $   $   $ 4,426   $   $ 4,426  

Cost of product sales and services

            2,869         2,869  

Selling, general and administrative expenses

    14         1,126         1,140  

Restructuring, asset impairment and divestiture charges, net

            4         4  
                       
 

Operating (loss) income

    (14 )       427         413  

Interest income

        1     11         12  

Interest expense

        (70 )   (3 )       (73 )

Other income, net

            4         4  

Equity in net income of subsidiaries

    641     334         (975 )    

Intercompany interest and fees

    (355 )   31     324          
                       
 

Income from continuing operations before income taxes

    272     296     763     (975 )   356  

Income tax benefit (expense)

        20     (104 )       (84 )
                       
 

Income from continuing operations

    272     316     659     (975 )   272  

Income from discontinued operations, net of income taxes

    5     2     5     (7 )   5  
                       
 

Net income

    277     318     664     (982 )   277  

Less: noncontrolling interest in subsidiaries net income

                     
                       
 

Net income attributable to Tyco common shareholders

  $ 277   $ 318   $ 664   $ (982 ) $ 277  
                       

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TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

17.    Tyco International Finance S.A. (Continued)


CONDENSED CONSOLIDATING BALANCE SHEET

As of December 25, 2009

($ in millions)

 
  Tyco
International
Ltd.
  Tyco
International
Finance S.A
  Other
Subsidiaries
  Consolidating
Adjustments
  Total  

Assets

                               

Current Assets:

                               
 

Cash and cash equivalents

  $   $ 5   $ 2,468   $   $ 2,473  
 

Accounts receivable, net

            2,499         2,499  
 

Inventories

            1,484         1,484  
 

Intercompany receivables

    1,073     24     15,114     (16,211 )    
 

Prepaid expenses and other current assets

    96         861         957  
 

Deferred income taxes

            407         407  
 

Assets held for sale

            153         153  
                       
   

Total current assets

    1,169     29     22,986     (16,211 )   7,973  

Property, plant and equipment, net

            3,506         3,506  

Goodwill

            8,786         8,786  

Intangible assets, net

            2,711         2,711  

Investment in subsidiaries

    44,062     16,351         (60,413 )    

Intercompany loans receivable

        10,129     18,695     (28,824 )    

Other assets

    112     302     2,211         2,625  
                       
   

Total Assets

  $ 45,343   $ 26,811   $ 58,895   $ (105,448 ) $ 25,601  
                       

Liabilities and Equity

                               

Current Liabilities:

                               
 

Loans payable and current maturities of long-term debt

  $   $   $ 17   $   $ 17  
 

Accounts payable

            1,159         1,159  
 

Accrued and other current liabilities

    243     65     1,863         2,171  
 

Deferred revenue

            546         546  
 

Intercompany payables

    9,823     5,296     1,092     (16,211 )    
 

Liabilities held for sale

    1     1     154     (2 )   154  
                       
   

Total current liabilities

    10,067     5,362     4,831     (16,213 )   4,047  

Long-term debt

        4,442     64         4,506  

Intercompany loans payable

    21,538     81     7,205     (28,824 )    

Deferred revenue

            1,122         1,122  

Other liabilities

    550     3     2,171         2,724  
                       
   

Total Liabilities

    32,155     9,888     15,393     (45,037 )   12,399  
                       

Tyco Shareholders' Equity:

                               
 

Preference shares

            2,500     (2,500 )    
 

Common shares

    3,121                 3,121  
 

Common shares held in treasury

            (173 )       (173 )
 

Other shareholders' equity

    10,067     16,923     41,161     (57,911 )   10,240  
                       
   

Total Tyco Shareholders' Equity

    13,188     16,923     43,488     (60,411 )   13,188  
 

Noncontrolling interest

            14         14  
                       
   

Total Equity

    13,188     16,923     43,502     (60,411 )   13,202  
                       
   

Total Liabilities and Equity

  $ 45,343   $ 26,811   $ 58,895   $ (105,448 ) $ 25,601  
                       

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TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

17.    Tyco International Finance S.A. (Continued)


CONDENSED CONSOLIDATING BALANCE SHEET

As of September 25, 2009

($ in millions)

 
  Tyco
International
Ltd.
  Tyco
International
Finance S.A.
  Other
Subsidiaries
  Consolidating
Adjustments
  Total  

Assets

                               

Current Assets:

                               
 

Cash and cash equivalents

  $   $   $ 2,354   $   $ 2,354  
 

Accounts receivable, net

            2,629         2,629  
 

Inventories

            1,443         1,443  
 

Intercompany receivables

    1,069     29     14,646     (15,744 )    
 

Prepaid expenses and other current assets

    114         858         972  
 

Deferred income taxes

            413         413  
 

Assets held for sale

            156         156  
                       
   

Total current assets

    1,183     29     22,499     (15,744 )   7,967  

Property, plant and equipment, net

            3,497         3,497  

Goodwill

            8,791         8,791  

Intangible assets, net

            2,647         2,647  

Investment in subsidiaries

    43,490     16,084         (59,574 )    

Intercompany loans receivable

        9,765     18,695     (28,460 )    

Other assets

    96     303     2,252         2,651  
                       
   

Total Assets

  $ 44,769   $ 26,181   $ 58,381   $ (103,778 ) $ 25,553  
                       

Liabilities and Equity

                               

Current Liabilities:

                               
 

Loans payable and current maturities of long-term debt

  $   $ 200   $ 45   $   $ 245  
 

Accounts payable

            1,244         1,244  
 

Accrued and other current liabilities

    338     54     2,084         2,476  
 

Deferred revenue

            590         590  
 

Intercompany payables

    9,476     5,177     1,091     (15,744 )    
 

Liabilities held for sale

    5     5     161     (10 )   161  
                       
   

Total current liabilities

    9,819     5,436     5,215     (15,754 )   4,716  

Long-term debt

        3,951     78         4,029  

Intercompany loans payable

    21,450     80     6,930     (28,460 )    

Deferred revenue

            1,134         1,134  

Other liabilities

    559         2,161         2,720  
                       
   

Total Liabilities

    31,828     9,467     15,518     (44,214 )   12,599  
                       

Tyco Shareholders' Equity:

                               
 

Preference shares

            2,500     (2,500 )    
 

Common shares

    3,122                 3,122  
 

Common shares held in treasury

            (214 )       (214 )
 

Other shareholders' equity

    9,819     16,714     40,564     (57,064 )   10,033  
                       
   

Total Tyco Shareholders' Equity

    12,941     16,714     42,850     (59,564 )   12,941  
 

Noncontrolling interest

            13         13  
                       
   

Total Equity

    12,941     16,714     42,863     (59,564 )   12,954  
                       
   

Total Liabilities and Equity

  $ 44,769   $ 26,181   $ 58,381   $ (103,778 ) $ 25,553  
                       

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TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

17.    Tyco International Finance S.A. (Continued)


CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

For the Quarter Ended December 25, 2009

($ in millions)

 
  Tyco
International
Ltd.
  Tyco
International
Finance S.A.
  Other
Subsidiaries
  Consolidating
Adjustments
  Total  

Cash Flows From Operating Activities:

                               
 

Net cash provided by operating activities

  $ 4   $ 85   $ 290   $   $ 379  

Cash Flows From Investing Activities:

                               

Capital expenditures

            (165 )       (165 )

Proceeds from disposal of assets

            16         16  

Acquisition of businesses, net of cash acquired

            (143 )       (143 )

Accounts purchased by ADT

            (150 )       (150 )

Net increase in intercompany loans

        (369 )       369      

Other

            25         25  
                       
 

Net cash used in investing activities

        (369 )   (417 )   369     (417 )

Cash Flows From Financing Activities:

                               

Net borrowings (repayments) of debt

        291     (43 )       248  

Proceeds from exercise of share options

            6         6  

Dividends paid

    (107 )               (107 )

Net intercompany loan borrowings

    88         281     (369 )    

Other

    15     (2 )   (1 )       12  
                       
 

Net cash (used in) provided by financing activities

    (4 )   289     243     (369 )   159  

Effect of currency translation on cash

            (2 )       (2 )
                       

Net increase in cash and cash equivalents

        5     114         119  

Cash and cash equivalents at beginning of period

            2,354         2,354  
                       

Cash and cash equivalents at end of period

  $   $ 5   $ 2,468   $   $ 2,473  
                       

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TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

17.    Tyco International Finance S.A. (Continued)

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
For the Quarter Ended December 26, 2008
($ in millions)

 
  Tyco
International
Ltd.
  Tyco
International
Finance S.A.
  Other
Subsidiaries
  Consolidating
Adjustments
  Total  

Cash Flows From Operating Activities:

                               
 

Net cash (used in) provided by operating activities

  $ (6 ) $ 518   $ (456 ) $   $ 56  

Cash Flows From Investing Activities:

                               

Capital expenditures

            (159 )       (159 )

Proceeds from disposal of assets

            2         2  

Acquisition of businesses, net of cash acquired

            (45 )       (45 )

Accounts purchased by ADT

            (117 )       (117 )

Net increase in intercompany loans

        (667 )       667      

Increase in investment in subsidiaries

    (18 )           18      

Other

            18         18  
                       
 

Net cash used in investing activities

    (18 )   (667 )   (301 )   685     (301 )
 

Net cash provided by discontinued investing activities

            3         3  

Cash Flows From Financing Activities:

                               

Net borrowings (repayments) of debt

        148     (42 )       106  

Dividends paid

    (95 )               (95 )

Repurchase of common shares by subsidiary

            (3 )       (3 )

Net intercompany loan borrowings

    118         549     (667 )    

Increase in equity from parent

            18     (18 )    

Transfer from discontinued operations

            3         3  

Other

            2         2  
                       
 

Net cash provided by financing activities

    23     148     527     (685 )   13  
 

Net cash used in discontinued financing activities

            (3 )       (3 )

Effect of currency translation on cash

            (94 )       (94 )
                       

Net decrease in cash and cash equivalents

    (1 )   (1 )   (324 )       (326 )

Cash and cash equivalents at beginning of period

    1     1     1,517         1,519  
                       

Cash and cash equivalents at end of period

  $   $   $ 1,193   $   $ 1,193  
                       

18.    Subsequent Events

        On January 15, 2010, the Company announced that its board of directors has recommended that its shareholders approve an annual Swiss Franc dividend equal to $0.84 at the Company's annual general meeting of shareholders on March 10, 2010. The proposed $0.84 dividend is equal to 0.85 Swiss Francs as of January 11, 2010, which represents a 5% increase over the $0.80 dividend approved by shareholders in 2009. Pursuant to Swiss law, dividend payments made prior to January 1, 2011 are subject to Swiss withholding taxes unless made in the form of a return of capital from the Company's

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TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

18.    Subsequent Events (Continued)


registered share capital. As such, the proposed dividend will be paid in the form of a capital reduction and will be distributed in four quarterly installments.

        On January 18, 2010, the Company entered into a definitive agreement to acquire Brink's Home Security Holdings, Inc ("BHS"), now operating as Broadview Security for approximately $2.0 billion or $42.50 per share. The acquisition price will be financed using cash not to exceed $585 million and the issuance of Tyco common shares. The transaction has been unanimously approved by the board of directors of each company. The transaction is expected to close in the second half of fiscal 2010 and is subject to customary closing conditions, including clearance under the Hart-Scott-Rodino Act and the approval of BHS shareholders. Following the closing of the transaction, the Company intends to combine Broadview with its ADT Worldwide segment.

        The Company has evaluated subsequent events through the time it filed its quarterly report on Form 10-Q on January 28, 2010.

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Item 2.    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 our Consolidated Financial Statements and the related notes included in this Quarterly 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."

Introduction

        The unaudited 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").

        The Company operates in the following business segments:

    ADT Worldwide designs, sells, installs, services and monitors electronic security systems for residential, commercial, industrial and governmental customers. In addition, ADT Worldwide manufactures certain products related to retailer anti-theft systems.

    Flow Control designs, manufactures, sells and services valves, pipes, fittings, valve automation and heat tracing products for the oil, gas and other energy markets along with general process industries and the water and wastewater markets.

    Fire Protection Services designs, sells, installs and services fire detection and fire suppression systems for commercial, industrial and governmental customers.

    Electrical and Metal Products designs, manufactures and sells galvanized steel tubing, armored wire and cable and other metal products for non-residential construction, electrical, fire and safety and mechanical customers.

    Safety Products designs, manufactures and sells fire suppression, electronic, security and life safety products, including fire suppression products, breathing apparatus, intrusion security, access control and video management systems. In addition, Safety Products manufactures products installed and serviced by ADT Worldwide and Fire Protection Services.

        We also provide general corporate services to our segments and these costs are reported as Corporate and Other.

        References to the segment data are to the Company's continuing operations. Certain prior period amounts have been reclassified to conform with the current period presentation. Specifically, the Company has realigned certain business operations during the first quarter of fiscal 2010 resulting in prior period segment amounts being recast. See Note 13 to the Consolidated Financial Statements.

Overview and Outlook

        Net revenue decreased $180 million, or 4.1%, for the quarter ended December 25, 2009 as compared to the quarter ended December 26, 2008. The decrease in revenue was driven primarily by lower selling prices of steel products in our Electrical and Metal Products segment, reduced volume in our Flow Control segment and the continued weakness in the commercial markets, which negatively impacted our ADT Worldwide and Safety Products segments. However, service revenue, which is principally derived from our ADT Worldwide and Fire Protection Services businesses, grew as a

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percentage of our overall revenue to 41% in the quarter ended December 26, 2008. Partially offsetting the net revenue decrease were favorable changes in foreign currency exchange rates of $264 million for the quarter ended December 25, 2009 as the U.S. dollar weakened against most major currencies as nearly 50% of our net revenue is generated outside the United States.

        Operating income of $414 million for the quarter ended December 25, 2009 remained relatively consistent with the comparable prior period. Lower volumes primarily in our Electrical and Metal Products, Safety Products and Flow Control segments, as well as the continued weakness in the commercial markets, negatively impacted operating income. The weakness in the commercial markets was offset by efficiencies gained from cost containment actions taken by the Company in fiscal 2009 and 2008 as well as restructuring actions taken in prior years. Restructuring, asset impairment and divestiture charges increased from $4 million to $11 million for the quarters ended December 26, 2008 and December 25, 2009, respectively. Operating income for the quarter ended December 25, 2009 was favorably impacted by $34 million due to changes in foreign currency exchange rates. Operating income for the quarter ended December 26, 2008 included a legacy legal settlement charge of $8 million, while no such charges were incurred during the quarter ended December 25, 2009.

        As of December 25, 2009, our cash balance was $2.5 billion, as compared to $2.4 billion as of September 25, 2009. The increase was primarily due to cash flow generated from operating activities of $379 million and proceeds of $498 million received from the issuance of long-term debt partially offset by $458 million of cash used for acquisitions, accounts purchased by ADT and capital expenditures and the repayment of $242 million of short-term debt. We expect to continue to use our cash to fund internal growth opportunities, improve productivity across all of our businesses, make acquisitions that strategically fit within our ADT Worldwide, Fire Protection Services and Flow Control businesses and return capital to shareholders. In fiscal 2010, we expect to use up to $585 million of cash to fund the acquisition of Brink's Home Security Holdings, Inc. ("BHS"), as described below.

        On January 18, 2010, we entered into a definitive agreement to acquire BHS, now operating as Broadview Security, for approximately $2.0 billion or $42.50 per share. The acquisition price will be financed using cash not to exceed approximately $585 million and the issuance of Tyco common shares. The transaction has been unanimously approved by the board of directors of each company. The transaction is expected to close in the second half of fiscal 2010 upon customary closing conditions, including clearance under the Hart-Scott-Rodino Act and the approval of BHS shareholders. Following the closing of the transaction, we intend to combine Broadview with our ADT Worldwide segment.

        In 2010, we also expect to continue our portfolio refinement efforts by exiting areas that have not provided, and are not expected to provide, an adequate return on investment and take advantage of restructuring opportunities that are expected to provide significant future cost savings. During the quarter ended December 25, 2009, we incurred approximately $11 million of restructuring and divestiture charges. We expect to incur total restructuring and restructuring related charges of approximately $100 million to $150 million in fiscal 2010.

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Operating Results

 
  For the Quarters Ended  
 
  December 25,
2009
  December 26,
2008
 

Revenue from product sales

  $ 2,528   $ 2,768  

Service revenue

    1,718     1,658  
           

Net revenue

  $ 4,246   $ 4,426  
           

Operating income

  $ 414   $ 413  

Interest income

    9     12  

Interest expense

    (76 )   (73 )

Other income, net

    9     4  
           

Income from continuing operations before income taxes

    356     356  

Income taxes

    (53 )   (84 )
           

Income from continuing operations

    303     272  

Income from discontinued operations, net of income taxes

        5  
           

Net income

  $ 303   $ 277  

Less: Noncontrolling interest in subsidiaries net income

    1      
           

Net income attributable to Tyco common shareholders

  $ 302   $ 277  
           

Quarter Ended December 25, 2009 Compared to Quarter Ended December 26, 2008

    ADT Worldwide

        Net revenue, operating income and operating margin for ADT Worldwide were as follows ($ in millions):

 
  For the Quarters Ended    
 
 
  December 25,
2009
  December 26,
2008
  % Change  

Revenue from product sales

  $ 631   $ 636     (0.8 )%(1)

Service revenue

    1,204     1,175     2.5 %(1)
                 

Net revenue

  $ 1,835   $ 1,811     1.3 %
                 

Operating income

    259     227     14.1 %

Operating margin

    14.1 %   12.5 %      

(1)
As discussed in Note 1 to the Consolidated Financial Statements, revenue related to the sale of electronic tags and labels has been classified as revenue from product sales during the quarter ended December 25, 2009. During the quarter ended December 26, 2008, the sale of the electronic tags and labels were misclassified as service revenue. The service revenue and revenue from product sales during the quarter ended December 26, 2008 have not been changed for this misclassification, as the effect is not material. The impact of the misclassification in the first, second, third and fourth quarters of fiscal 2009 would have been to decrease service revenue by $77 million, $65 million, $73 million and $71 million, respectively, with corresponding increases to revenue from product sales.

        Revenue from product sales includes sales and installation of electronic security and other life safety systems as well as products related to retailer anti-theft systems. Service revenue is comprised of electronic security services and maintenance, including the monitoring of burglar alarms, fire alarms and other life safety systems as well as other security services.

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        Net revenue by geographic area for ADT Worldwide was as follows ($ in millions):

 
  For the Quarters Ended    
 
 
  December 25,
2009
  December 26,
2008
  % Change  

North America

  $ 1,056   $ 1,069     (1.2 )%

Europe, Middle East and Africa ("EMEA")

    485     484     %

Rest of World

    294     258     14.0 %
                 

  $ 1,835   $ 1,811     1.3 %
                 

        Net revenue for ADT Worldwide increased $24 million, or 1.3%, during the quarter ended December 25, 2009, as compared to the quarter ended December 26, 2008. Net revenue was favorably impacted by changes in foreign currency exchange rates of $89 million, while revenue was negatively affected by $5 million for the net impact of acquisitions and divestitures. Approximately 56% and 52% of ADT Worldwide's total net revenue for the quarters ended December 25, 2009 and December 26, 2008, respectively, represents revenue associated with monitoring and maintenance services under contractual arrangements, which is considered recurring revenue. Recurring revenue increased by $89 million, or 9.4%, to approximately $1.0 billion as a result of growth in customer accounts of 193,000, or 2.6%, to a total of 7.5 million accounts as of December 25, 2009. Changes in foreign currency exchange rates favorably impacted recurring revenue by $41 million, or 4.4%. Systems installation, product sales and other service revenue declined by $65 million, or 7.5%, to $805 million due to lower sales volume primarily as the result of continued weakness in the commercial and retailer end markets. Changes in foreign currency exchange rates favorably impacted systems installation, product sales and other service revenue by $48 million, or 5.5%, while the net impact of acquisitions and divestitures resulted in an unfavorable impact of $5 million or 0.6%.

        Geographically, North America net revenue decreased $13 million, or 1.2%, due to a decline in systems installation, product sales and other service revenue as the result of the continued weakness in the commercial and retailer end markets. This decrease was partially offset by an increase in recurring revenue. Net revenue was also favorably impacted by changes in foreign currency exchange rates of $12 million, or 1.2%. Net revenue in EMEA increased by $1 million, which was favorably impacted by changes in foreign currency exchange rates of $46 million, or 9.5%. This increase in net revenue was almost entirely offset by a decline in systems installation, product sales and other service revenue as a result of the continued slowdown in the commercial and retailer end markets. Recurring revenue in EMEA remained relatively flat when compared to the quarter ended December 26, 2008. Net revenue increased $36 million, or 14.0%, in the Rest of World geographies primarily due to recurring revenue growth in both the Asia Pacific and Latin American regions as ADT Worldwide continues to focus on building its customer account and recurring revenue base in these markets. This increase was partially offset by a decline in system installation, products sales and other service revenue in Latin America due to slowdown in the commercial and retailer end markets. Net revenue in the rest of the world was also favorably impacted by changes in foreign currency exchange rates of $32 million, or 12.4%.

        Attrition rates remained relatively consistent, as shown in the following table:

 
  For the Quarters Ended  
 
  December 25,
2009
  September 25,
2009
  December 26,
2008
 

Trailing 12-month basis attrition

    13.5 %   13.4 %   13.2 %

        Operating income increased $32 million, or 14.1%, in the quarter ended December 25, 2009 from the same period in the prior year. Operating margin increased to 14.1% in the quarter ended December 25, 2009 from 12.5% for the same period in the prior year. Operating income was positively impacted by the shift to higher margin recurring revenue discussed above. Additionally, operating

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income was favorably impacted by the net impact of savings realized through previous restructuring actions and savings realized through cost containment actions and lower intangible asset amortization related to certain tradenames. During the quarter ended December 25, 2009, $5 million of restructuring charges were incurred compared to $1 million during the quarter ended December 26, 2008. Changes in foreign currency exchange rates favorably impacted operating income by $10 million.

    Flow Control

        Net revenue, operating income and operating margin for Flow Control were as follows ($ in millions):

 
  For the Quarters Ended    
 
 
  December 25,
2009
  December 26,
2008
  % Change  

Revenue from product sales

  $ 838   $ 892     (6.1 )%

Service revenue

    85     67     26.9 %
               

Net revenue

  $ 923   $ 959     (3.8 )%
               

Operating income

  $ 112   $ 137     (18.2 )%

Operating margin

    12.1 %   14.3 %      

        Net revenue for Flow Control decreased $36 million, or 3.8%, in the quarter ended December 25, 2009 compared to the quarter ended December 26, 2008. The decrease in net revenue was primarily driven by reduced volume in the valves business and reduced project activity within the thermal controls business partially offset by favorable changes in foreign currency exchange rates of $96 million. The net impact of acquisitions and divestitures unfavorably impacted net revenue by $2 million in the quarter ended December 25, 2009 and favorably impacted net revenue by $1 million in prior year.

        The decrease in operating income of $25 million, or 18.2%, in the quarter ended December 25, 2009, as compared to the same period in the prior year, was primarily due to decreased volume in the valves and thermal businesses offset by margin improvements in the water business within the EMEA region and favorable changes in foreign currency exchange rates of $15 million. Margins were negatively impacted by restructuring charges of $6 million in the quarter ended December 25, 2009 as compared to $1 million during the quarter ended December 26, 2008. The decline in operating income was partially offset by savings realized through cost containment and restructuring actions.

    Fire Protection Services

        Net revenue, operating income and operating margin for Fire Protection Services were as follows ($ in millions):

 
  For the Quarters Ended    
 
 
  December 25,
2009
  December 26,
2008
  % Change  

Revenue from product sales

  $ 407   $ 426     (4.5 )%

Service revenue

    426     413     3.1 %
               

Net revenue

  $ 833   $ 839     (0.7 )%
               

Operating income

  $ 64   $ 56     14.3 %

Operating margin

    7.7 %   6.7 %      

        Revenue from product sales includes sales and installation of fire protection and other systems. Service revenue consists of inspection, maintenance, service and monitoring of fire detection and suppression systems.

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        Net revenue by geographic area for Fire Protection Services was as follows ($ in millions):

 
  For the Quarters Ended    
 
 
  December 25,
2009
  December 26,
2008
  % Change  

North America

  $ 469   $ 491     (4.5 )%

International

    364     348     4.6 %
               

Net revenue

  $ 833   $ 839     (0.7 )%
               

        Net revenue for Fire Protection Services decreased $6 million, or 0.7%, during the quarter ended December 25, 2009 compared to the quarter ended December 26, 2008. This decrease was primarily due to the continued weakness in the commercial market, which more than offset the favorable changes in foreign currency exchange rates of $49 million, or 5.8%. Geographically, net revenue in North America decreased $22 million, or 4.5% primarily due to the continued decline in systems installation and upgrade activity as well as service revenue in the sprinkler business. Changes in foreign currency exchange rates favorably impacted revenue in North America by $7 million, or 1.4%. Net revenue in our international fire businesses increased by $16 million, or 4.6% largely due to the favorable impact of changes in foreign currency exchange rates of $42 million, or 12.1% partially offset by a decrease in revenue due to the continued weakness in the European commercial markets.

        Operating income increased $8 million, or 14.3% in the quarter ended December 25, 2009 as compared to the same period in the prior year. The increase was primarily driven by savings realized through cost containment actions, a reduction in legal costs and to a lesser extent favorable changes in foreign currency exchange rates of $3 million. The increase was partially offset by the decreased sales volume discussed above as well as restructuring charges of $3 million in the quarter ended December 25, 2009 as compared to no charges in the quarter ended December 26, 2008.

    Electrical and Metal Products

        Net revenue, operating income and operating margin for Electrical and Metal Products were as follows ($ in millions):

 
  For the Quarters Ended    
 
 
  December 25,
2009
  December 26,
2008
  % Change  

Revenue from product sales

  $ 296   $ 415     (28.7 )%

Service revenue

    1     1     %
               

Net revenue

  $ 297   $ 416     (28.6 )%
               

Operating income

  $ 23   $ 27     (14.8 )%

Operating margin

    7.7 %   6.5 %      

        Net revenue for Electrical and Metal Products decreased $119 million, or 28.6%, in the quarter ended December 25, 2009 compared to the quarter ended December 26, 2008. The decrease in revenue was primarily due to lower selling prices of steel products and to a lesser extent lower selling prices of armored cable products. Lower volume for both steel and armored cable products largely resulting from a decline in the commercial market in North America also contributed to the decline. Changes in foreign currency exchange rates had a favorable impact of $12 million.

        Operating income decreased $4 million, or 14.8% in the quarter ended December 25, 2009 as compared to the same period in the prior year. Operating income decreased primarily as a result of the decline in volume of steel and armored cable products as well as lower spreads for armored cable products. Lower selling prices more than offset lower raw material costs which resulted in the lower

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spreads for armored cable products. These decreases were partially offset by higher spreads for steel products as lower raw material costs more than offset lower selling prices.

    Safety Products

        Net revenue, operating income and operating margin for Safety Products were as follows ($ in millions):

 
  For the Quarters Ended    
 
 
  December 25,
2009
  December 26,
2008
  % Change  

Revenue from product sales

  $ 356   $ 399     (10.8 )%

Service revenue

    2     2     %
               

Net revenue

  $ 358   $ 401     (10.7 )%
               

Operating income

  $ 54   $ 80     (32.5 )%

Operating margin

    15.1 %   20.0 %      

        Net revenue for Safety Products decreased $43 million, or 10.7%, during the quarter ended December 25, 2009 as compared to the quarter ended December 26, 2008. Net revenue was favorably impacted by changes in foreign currency exchange rates of $18 million, while revenue was negatively affected by $6 million for the net impact of acquisitions and divestitures. The decrease in net revenue is primarily due to lower volume in our fire suppression and electronic security businesses. The decrease in our fire suppression business was primarily due to reduced spending in the commercial construction market. The electronic security business decrease was primarily due to the continued slow down in the retail sector, as retail capital projects and new store openings continue to be canceled or delayed.

        Operating income decreased $26 million, or 32.5% during the quarter ended December 25, 2009 compared to the same period in the prior year. The decrease in operating income is primarily attributable to the sales volume decline as discussed above. The decrease in operating income was partially offset by the favorable changes in foreign currency exchange rates of $3 million. A credit of $1 million of restructuring and divestiture charges, net during the quarter ended December 25, 2009 favorably impacted operating income as compared to $1 million of restructuring charges during the quarter ended December 26, 2008.

    Corporate and Other

        Corporate expense decreased $16 million, or 14.0%, to $98 million in the quarter ended December 25, 2009 compared to $114 million in the quarter ended December 26, 2008. Corporate expense for the quarter ended December 25, 2009 included net charges of $2 million relating to divestiture charges as compared to $10 million of net charges in the prior year. The $10 million of net charges for the quarter ended December 26, 2008 was comprised of $8 million of charges related to legacy legal settlements and $2 million of divestiture charges. The remaining decrease in Corporate expense is related to savings realized through cost containment actions.

    Interest Income and Expense

        Interest income was $9 million and $12 million during the quarters ended December 25, 2009 and December 26, 2008, respectively. The decrease in interest income is primarily related to lower investment yields.

        Interest expense was $76 million in the quarter ended December 25, 2009 compared to $73 million in the quarter ended December 26, 2008. The increase in interest expense is primarily related to interest on new debt issuances.

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    Other Income, Net

        Other income, net was $9 million and $4 million during the quarters ended December 25, 2009, December 26, 2008, respectively. Other income, net for the quarter ended December 25, 2009 primarily relates to an increase in receivables due from Covidien and Tyco Electronics under the Tax Sharing Agreement.

    Effective Income Tax Rate

        Our effective income tax rate was 14.9% and 23.6% during the quarters ended December 25, 2009 and December 26, 2008, respectively. The decrease in the effective tax rate was primarily due to the impact of enacted tax law changes on our deferred tax balances and a non-recurring item generating a tax benefit.

        The valuation allowance for deferred tax assets of $797 million and $791 million as of December 25, 2009 and September 25, 2009, respectively, relates principally to the uncertainty of the utilization of certain deferred tax assets, primarily tax loss and credit carryforwards in various jurisdictions. The valuation allowance was calculated and recorded when we determined that it was more-likely-than-not that all or a portion of our deferred tax assets would not be realized. We believe that we will generate sufficient future taxable income to realize the tax benefits related to the remaining net deferred tax assets on our 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.

    Other Income Tax Matters

        In connection with the spin-offs of Covidien and Tyco Electronics from Tyco, Tyco entered into a Tax Sharing Agreement that governs the rights and obligations of each party with respect to certain pre-Separation income tax liabilities. More specifically, Tyco, Covidien and Tyco Electronics 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 Tyco Electronics' U.S. and certain non-U.S. income tax returns. All costs and expenses associated with the management of these shared tax liabilities are shared equally among the parties. Consistent with the sharing provisions of the Tax Sharing Agreement, Tyco had a net receivable from Covidien and Tyco Electronics of $115 million and $106 million as of December 25, 2009 and September 25, 2009, respectively. In addition, as of December 25, 2009 and September 25, 2009, Tyco had a liability of $554 million representing Tyco's obligations under the Tax Sharing Agreement.

        Tyco and its subsidiaries' income tax returns periodically are examined by various tax authorities. In connection with these examinations, tax authorities, including the IRS, have raised issues and proposed tax adjustments. The Company is reviewing and contesting certain of the proposed tax adjustments. Amounts related to these tax adjustments and other tax contingencies and related interest have been assessed as uncertain income tax positions and recorded as appropriate.

        For a detailed discussion of contingencies related to Tyco's income taxes, see Note 5 to the Consolidated Financial Statements.

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Divestitures

        We have continued to assess the strategic fit of our various businesses and pursued divestiture of certain businesses which do not align with our long-term strategy.

Held for Sale and Reflected as Continuing Operations

        During the fourth quarter of 2009, we approved a plan to sell a business in our ADT Worldwide segment. This business has been classified as held for sale; however, its results of operations are presented in continuing operations as the criteria for discontinued operations have not been met. We have assessed and determined that the carrying value of this business is recoverable and will continue to assess recoverability based on current fair value, less cost to sell, until the business is sold. We expect to complete the sale during fiscal 2010.

Critical Accounting Policies and Estimates

        The preparation of the Consolidated Financial Statements in conformity with 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. We believe that our accounting policies for depreciation and amortization methods of security monitoring-related assets, revenue recognition, loss contingencies, income taxes, goodwill and indefinite-lived intangible assets, long-lived assets and pension and postretirement benefits are based on, among other things, judgments and assumptions made by management that include inherent risks and uncertainties. During the three months ended December 25, 2009, there were no significant changes to these policies or in the underlying accounting assumptions and estimates used in the above critical accounting policies from those disclosed in the Consolidated Financial Statements and accompanying notes contained in the Company's Annual Report on Form 10-K for the fiscal year ended September 25, 2009 (the "2009 Form 10-K"). See Note 1 to the Consolidated Financial Statements for the adoption of new accounting standards during the first quarter of 2010.


Liquidity and Capital Resources

        On October 5, 2009, Tyco International Finance S.A. ("TIFSA") issued $500 million aggregate principle amount of 4.125% notes due 2014 (the "2014 notes"), which are fully and unconditionally guaranteed by the Company. TIFSA received net proceeds of approximately $495 million after deducting debt issuance costs and a debt discount.

        The net proceeds of the aforementioned offering may be used for general corporate purposes, which may include repayment of indebtedness, acquisitions, additions to working capital, repurchase of common shares, capital expenditures and investments in the Company's subsidiaries.

        As of December 25, 2009, there were no amounts drawn under our revolving credit facilities. As of December 25, 2009, the aggregate available commitment under our senior revolving credit facilities was $1.69 billion. We continually monitor developments regarding the availability of funds under our revolving credit facilities. Although there is some risk that financial institutions will fail to perform their contractual obligations, particularly in times of credit market distress, we believe that the lenders under our revolving credit facilities are capable of meeting any borrowing requests we may make for the foreseeable future.

        As of December 25, 2009, TIFSA had made payments of $200 million to extinguish all of its commercial paper outstanding.

        In addition to our available cash and operating cash flows, additional sources of potential liquidity include committed credit lines, our commercial paper program, public debt and equity markets as well as the ability to sell trade accounts receivable. We continue to balance our operating, investing and financing uses of cash through investment in our existing core businesses, strategic acquisitions and

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divestitures, dividends and share repurchases. We believe our cash position, amounts available under our credit facilities and cash provided by operating activities will be adequate to cover our operational and business needs.

        We continue to monitor market conditions and assess the impact, if any, on our financial position, results of operations or cash flows. Approximately 100% of our U.S. and more than 95% of our non-U.S. funded pension plans are invested in marketable investments, including publicly-traded equity and fixed income securities. Although we do not believe we will be required to make materially higher cash contributions in the next 12 months, if market condition worsen, we may be required to make incremental cash contributions under local statutory law.

        The sources of our cash flow from operating activities and the use of a portion of that cash in our operations were as follows ($ in millions):

 
  For the Quarters Ended  
 
  December 25,
2009
  December 26,
2008
 

Cash flows from operating activities:

             

Operating income

  $ 414   $ 413  

Depreciation and amortization(1)

    287     275  

Non-cash compensation expense

    31     29  

Deferred income taxes

    4     (17 )

Provision for losses on accounts receivable and inventory

    34     34  

Other, net

    12     22  

Net change in working capital

    (283 )   (555 )

Interest income

    9     12  

Interest expense

    (76 )   (73 )

Income tax expense

    (53 )   (84 )
           

Net cash provided by operating activities

  $ 379   $ 56  
           

Other cash flow items:

             

Capital expenditures, net(2)

  $ (149 ) $ (157 )

(Increase) decrease in the sale of accounts receivable

    (1 )   3  

Accounts purchased by ADT

    (150 )   (117 )

(1)
The quarters ended December 25, 2009 and December 26, 2008 included depreciation expense of $158 million and $148 million, respectively, and amortization of intangible assets of $129 million and $127 million, respectively.

(2)
Included net proceeds received for the sale/disposition of property, plant and equipment of $16 million and $2 million for the quarters ended December 25, 2009 and December 26, 2008, respectively.

        The net change in working capital decreased operating cash flow by $283 million in the quarter ended December 25, 2009. The significant changes in working capital included a $216 million decrease in accrued and other liabilities and a $71 million decrease in accounts payable.

        During the three months ended December 25, 2009, we purchased approximately 129,000 customer contracts for electronic security services by our ADT Worldwide segment for cash of $150 million.

        We continue to fund capital expenditures to grow our business, improve the cost structure of our businesses, to invest in new processes and technology, and to maintain high quality production standards. The level of capital expenditures in fiscal year 2010 is expected to exceed the spending levels in fiscal year 2009.

        During the quarter ended December 25, 2009, we paid approximately $49 million in cash related to restructuring activities. See Note 3 to our Consolidated Financial Statements for further information regarding our restructuring activities.

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        Income taxes paid, net of refunds, related to continuing operations were $49 million and $73 million during the quarters ended December 25, 2009 and December 26, 2008, respectively.

        During the quarter ended December 25, 2009, cash paid for acquisitions included in continuing operations totaled $143 million, net of cash acquired of $1 million, which primarily related to the acquisition of two Brazilian valve companies, including Hiter Industria e Comercio de Controle Termo-Hidraulico Ltda ("Hiter"), a valve manufacturer which serves a variety of industries including the oil and gas, chemical and petrochemical markets. Net cash paid for Hiter totaled $104 million by the Company's Flow Control segment. In addition, the Company acquired certain assets of a business within its Electrical and Metal Products segment for $39 million.

        We will continue to divest businesses that do not align with our overall strategy. We expect to use the expected proceeds from these sales, as well as the cash generated by our operations, to continue to make investments in our businesses that are intended to grow revenue and improve productivity, including our restructuring actions. We expect to also use cash to selectively pursue acquisitions. As disclosed in Note 18 to our Consolidated Financial Statements, we entered into a definitive agreement to acquire BHS for approximately $2.0 billion. We will finance this acquisition using cash not to exceed approximately $585 million and the issuance of our common shares.

        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 10b5-1 trading plan in accordance with applicable regulations.

        Management believes that cash generated by or available to us should be sufficient to fund our capital and liquidity needs for the foreseeable future, including quarterly dividend payments. We intend to continue to repurchase shares under our existing $1.0 billion share repurchase program approved by our Board of Directors on July 10, 2008 in accordance with applicable law and depending on credit market conditions, macroeconomic factors and expectations regarding future cash flows. As also disclosed in Note 18 to our Consolidated Financial Statements, on January 15, 2010, we announced that our Board of Directors recommended that our shareholders approve an annual Swiss franc dividend equal to $0.84 at our annual general meeting of shareholders on March 10, 2010, which represents a 5% increase over the $0.80 dividend approved by our shareholders in 2009.

Capitalization

        Tyco shareholders' equity was $13.2 billion, or $27.76 per share, as of December 25, 2009, compared to $12.9 billion, or $27.30 per share, as of September 25, 2009. Tyco shareholders' equity increased primarily due to net income attributable to Tyco common shareholders of $302 million. Total debt was $4.5 billion as of December 25, 2009, as compared to $4.3 billion as of September 25, 2009. Total debt as a percentage of total capitalization (total debt and shareholders' equity) was 26% as of December 25, 2009 and 25% as of September 25, 2009.

        Our cash balance increased to $2.5 billion as of December 25, 2009, as compared to $2.4 billion at September 25, 2009. The increase was primarily due to cash flow generated from operating activities of $379 million and proceeds of $498 million received from the issuance of long-term debt, partially offset by $458 million of cash used for acquisitions, accounts purchased by ADT and capital expenditures as well as the repayment of $242 million of short-term debt.

        On September 30, 2009, TIFSA issued $500 million aggregate principal amount of 4.125% Notes due 2014 (the "2014" notes), which are fully and unconditionally guaranteed by us. TIFSA received net proceeds of approximately $495 million after deducting debt issuance costs and a debt discount. The 2014 notes are unsecured and rank equally with TIFSA's other unsecured and unsubordinated debt. Payment of principal and interest on the 2014 notes will be fully and unconditionally guaranteed by us. We will pay interest on the 2014 notes on April 15 and October 15 of each year beginning April 15, 2010. TIFSA may redeem any of the notes at any time by paying the greater of the principal amount of the 2014 notes or a "make-whole" amount, plus accrued and unpaid interest to, but excluding, the redemption date.

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        The following table details our long-term and short-term debt ratings as of December 25, 2009 and September 25, 2009:

 
  Short-Term
Debt
Ratings
  Long Term
Debt Ratings

Moody's

    P-2   Baa1

Standard & Poor's

    A-2   BBB+

Fitch

    F2   BBB+

        The security ratings set forth above are not a recommendation to buy, sell or hold securities and may be subject to revision or withdrawal by the assigning rating organization. Each rating should be evaluated independently of any other rating.


Commitments and Contingencies

        For a detailed discussion of contingencies related to our litigation matters and governmental investigations related to us, see Note 10 to our Consolidated Financial Statements.

Backlog

        As of December 25, 2009 Tyco had a backlog of unfilled orders of $8.9 billion compared to a backlog of $9.0 billion as of September 25, 2009. We expect that approximately 86% of our backlog as of December 25, 2009 will be filled during the next 12 months. Backlog by segment was as follows ($ in millions):

 
  December 25,
2009
  September 25,
2009
 

ADT Worldwide

  $ 5,925   $ 5,916  

Flow Control

    1,652     1,698  

Fire Protection Services

    1,157     1,171  

Electrical and Metal Products

    76     72  

Safety Products

    118     102  
           

  $ 8,928   $ 8,959  
           

        Backlog decreased by $31 million, or 0.3%, from $9.0 billion as of September 25, 2009 to $8.9 billion as of December 25, 2009. The decrease in backlog was primarily due to unfavorable changes in foreign currency exchange rates of $31 million. ADT Worldwide's backlog includes recurring revenue-in-force which represents 12 months' revenue associated with monitoring and maintenance services under contract in the security business. ADT Worldwide's backlog increased $9 million, or 0.2%, primarily driven by an increase in revenue-in-force which was partially offset by decreased bookings and unfavorable exchange rates of $14 million. Flow Control's backlog decreased by $46 million primarily due to decreased bookings of $32 million and unfavorable exchange rates of $14 million. Fire Protection Services backlog decreased by $14 million primarily due to decreased bookings of $11 million and unfavorable exchange rates of $3 million.


Off-Balance Sheet Arrangements

Sale of Accounts Receivable

        Certain of our international businesses utilize the sale of accounts receivable as short-term financing mechanisms. The aggregate amount outstanding under our international accounts receivable programs was $54 million and $55 million as of December 25, 2009 and September 25, 2009, respectively.

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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 and Tyco Electronics in accordance with the terms of the Separation and Distribution Agreement and the Tax Sharing Agreement. The guarantees primarily relate to certain contingent tax liabilities included in the Tax Sharing Agreement. At the time of the Separation, we recorded a liability necessary to recognize the fair value of such guarantees and indemnifications. See Note 5 to the Consolidated Financial Statements for further discussion of the Tax Sharing Agreement. In addition, prior to the Separation we provided support in the form of financial and/or performance guarantees to various Covidien and Tyco Electronics operating entities. To the extent these guarantees were not assigned in connection with the Separation, we assumed primary liability on any remaining such support. The estimated fair value of these obligations was not material to us as of December 25, 2009.

        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 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. See Note 10 to the Consolidated Financial Statements for a discussion of these 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.

        For a detailed discussion of guarantees and indemnifications, see Note 16 to the Consolidated Financial Statements.


Accounting Pronouncements

        Recently Adopted Accounting Pronouncements—In June 2008, the Financial Accounting Standards Board ("FASB") ratified authoritative guidance for determining whether instruments granted in share-based payment transactions are participating securities. The guidance addresses whether instruments granted in share-based payment awards are participating securities prior to vesting and, therefore, must be included in the earnings allocation in calculating earnings per share under the two-class method. The guidance requires that unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend-equivalents be treated as participating securities in calculating earnings per share. The guidance became effective for Tyco in the first quarter of fiscal 2010, and has been applied retrospectively to prior periods. The adoption did not have a material impact on our historical annual or quarterly basic and diluted earnings per share. See Note 6 to the Consolidated Financial Statements for additional information related to the adoption of the guidance.

        In December 2007, the FASB revised the authoritative guidance for business combinations. The revised guidance retains the underlying concepts of the existing guidance in that business combinations are still accounted for at fair value. However, the accounting for certain other aspects of business combinations will be affected. Acquisition costs will generally be expensed as incurred. Restructuring

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costs associated with a business combination will generally be expensed subsequent to the acquisition date. In-process research and development will be recorded at fair value as an indefinite-lived intangible at the acquisition date until it is completed or abandoned and its useful life can be determined. Changes in deferred tax asset valuation allowances and uncertain tax positions after the acquisition date will generally impact income tax expense. The revised guidance also expands required disclosures surrounding the nature and financial effects of business combinations. We adopted the revised guidance in the first quarter of fiscal 2010. The revised guidance is primarily effective for all business combinations beginning in the first quarter of fiscal 2010 and thereafter, and its adoption did not have a material impact on our financial position, results of operations or cash flows for the quarter ended December 25, 2009.

        In December 2007, the FASB issued authoritative guidance for noncontrolling interests in consolidated financial statements. The guidance requires the recognition of a noncontrolling interest (minority interest prior to the adoption of the guidance) as equity in the Consolidated Financial Statements. The amount of net income attributable to the noncontrolling interest should be included in consolidated net income on the face of the Consolidated Statements of Operations. The guidance also amends certain existing consolidation procedures in order to achieve consistency with the requirements of the revised authoritative guidance for business combinations discussed above. The guidance also includes expanded disclosure requirements regarding the interests of the parent and its noncontrolling interest. The guidance was adopted by Tyco in the first quarter of fiscal 2010 and has been applied retrospectively. The adoption did not have a material impact on our financial position, results of operations or cash flows.

        In September 2006, the FASB issued authoritative guidance for fair value measurements, which enhances existing guidance for measuring assets and liabilities at fair value. The guidance defines fair value, establishes a framework for measuring fair value and expands disclosure about fair value measurements. In February 2008, the FASB issued authoritative guidance which permitted companies to partially defer the effective date of the guidance for one year for nonfinancial assets and liabilities that are recognized or disclosed at fair value in the financial statements on a nonrecurring basis. During the first quarter of 2009 the Company elected to defer the adoption of the guidance for one year for non-financial assets and liabilities that are recognized or disclosed at fair value in the financial statements on a nonrecurring basis. The guidance became effective for Tyco in the first quarter of 2009 for financial assets and liabilities only. We adopted the fair value provisions relating to nonfinancial assets and liabilities in the first quarter of fiscal 2010. The adoption did not have a material impact on our financial position, results of operations or cash flows.

        In April 2008, the FASB issued authoritative guidance for determining the useful life of intangible assets. The guidance amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset. The guidance became effective for Tyco in the first quarter of fiscal 2010. The adoption did not have a material impact on our financial position, results of operations or cash flows.

        Recently Issued Accounting Pronouncements—In September 2009, the FASB issued authoritative guidance for the accounting for revenue arrangements with multiple deliverables. The guidance establishes a selling price hierarchy for determining the selling price of a deliverable. The selling price used for each deliverable will be based on vendor-specific objective evidence if available, third-party evidence if vendor-specific objective evidence is not available, or estimated selling price if neither vendor-specific evidence nor third-party evidence is available. The guidance requires arrangements under which multiple revenue generating activities to be performed be allocated at inception. The residual method under the existing accounting guidance has been eliminated. The guidance expands the disclosure requirements related to multiple-deliverable revenue arrangements. The guidance becomes effective for revenue arrangements entered into or materially modified beginning in fiscal 2011, with early adoption permitted. The guidance applies on a prospective basis unless the Company specifically

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elects to apply the guidance retrospectively. We are currently assessing what impact, if any, the guidance will have on our financial position, results of operations or cash flows, as well as the timing of its adoption of the guidance.

        In June 2009, the FASB issued authoritative guidance which amended the existing guidance for the consolidation of variable interest entities, to address the elimination of the concept of a qualifying special purpose entity. The guidance also replaces the quantitative-based risks and rewards calculation for determining which enterprise has a controlling financial interest in a variable interest entity with an approach focused on identifying which enterprise has the power to direct the activities of a variable interest entity, and the obligation to absorb losses of the entity or the right to receive benefits from the entity. Additionally, the guidance requires any enterprise that holds a variable interest in a variable interest entity to provide enhanced disclosures that will provide users of financial statements with more transparent information about an enterprise's involvement in a variable interest entity. The guidance is effective for Tyco in the first quarter of fiscal 2011. We are currently assessing what impact, if any, that the guidance will have on its financial position, results of operations or cash flows.

        In December 2008, the FASB issued authoritative guidance for employers' disclosures about postretirement benefit plan assets. The guidance requires additional disclosures about plan assets related to an employer's defined benefit pension or other post-retirement plans to enable investors to better understand how investment decisions are made, the major categories of plan assets, the inputs and valuation techniques used to measure the fair value of plan assets, the effect of fair value measurements using significant unobservable inputs (Level 3) on changes in plan assets for the period, and the significant concentrations of risk within plan assets. The disclosure provisions of the guidance are effective for Tyco in fiscal 2010 and will be adopted concurrent with the pension disclosures associated with our annual valuation process during the fourth quarter of fiscal 2010.


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 Securities and Exchange Commission ("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 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;

    the demand for Tyco's goods and services;

    competitive factors in the industries in which Tyco competes;

    changes in tax requirements (including tax rate changes, new tax laws and revised tax law interpretations);

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    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 and governmental proceedings;

    effect of income tax audit settlements;

    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;

    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, including steel and copper;

    economic and political conditions in international markets, including governmental changes and restrictions on the ability to transfer capital across borders;

    the ability to achieve cost savings in connection with the Company's strategic restructuring and Six Sigma initiatives; and our ability to execute our portfolio refinement and acquisition strategies;

    potential further impairment of our goodwill, intangibles and/or our long-lived assets;

    the impact of fluctuations in the price of Tyco common shares;

    risks associated with the change in our jurisdiction of incorporation from Bermuda to Switzerland, including the possibility of reduced flexibility with respect to certain aspects of capital management, increased or different regulatory burdens, and the possibility that we may not realize anticipated tax benefits;

    changes in U.S. and non-U.S. government laws and regulations; and

    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 jurisdiction of incorporation or deny U.S. government contracts to Tyco based upon its jurisdiction of incorporation.

Item 3.    Quantitative and Qualitative Disclosures About Market Risk

        The Company's exposure to market risk from changes in interest rates, foreign currency exchange rates and commodity prices has not changed materially from our exposure discussed in the 2009 Form 10-K. In order to manage the volatility relating to our more significant market risks, we currently enter into forward foreign currency exchange contracts, interest rate swaps and commodity swaps for copper. During the first quarter of 2010, the Company entered into commodity swaps for copper, which did