10-Q 1 a2198086z10-q.htm FORM 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 March 26, 2010

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 April 21, 2010 was 475,419,817.



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 and six months ended March 26, 2010 and March 27, 2009

 

1

 

 

Consolidated Balance Sheets (Unaudited) as of March 26, 2010 and September 25, 2009

 

2

 

 

Consolidated Statements of Cash Flows (Unaudited) for the six months ended March 26, 2010 and March 27, 2009

 

3

 

 

Consolidated Statements of Shareholders' Equity (Unaudited) for the six months ended March 26, 2010 and March 27, 2009

 

4

 

 

Notes to Consolidated Financial Statements (Unaudited)

 

5

Item 2.

 

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

 

49

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

74

Item 4.

 

Controls and Procedures

 

74

Part II.

 

Other Information

 

 

Item 1.

 

Legal Proceedings

 

75

Item 1A.

 

Risk Factors

 

79

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

79

Item 3.

 

Defaults Upon Senior Securities

 

79

Item 4.

 

Submission of Matters to a Vote of Security Holders

 

79

Item 5.

 

Other Information

 

80

Item 6.

 

Exhibits

 

80

Signatures

 

81

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
  For the
Six Months Ended
 
 
  March 26,
2010
  March 27,
2009
  March 26,
2010
  March 27,
2009
 

Revenue from product sales

  $ 2,469   $ 2,518   $ 4,997   $ 5,286  

Service revenue

    1,700     1,632     3,418     3,290  
                   
 

Net revenue

    4,169     4,150     8,415     8,576  

Cost of product sales

    1,752     1,861     3,557     3,840  

Cost of services

    907     854     1,783     1,744  

Selling, general and administrative expenses

    1,108     1,200     2,248     2,340  

Goodwill and intangible asset impairments (see Note 7)

        2,705         2,705  

Restructuring, asset impairment and (gain)/loss on divestitures, net (see Notes 2 and 3)

    (25 )   84     (14 )   88  
                   
 

Operating income (loss)

    427     (2,554 )   841     (2,141 )

Interest income

    7     11     16     23  

Interest expense

    (74 )   (78 )   (150 )   (151 )

Other income, net

    3     7     12     11  
                   
 

Income (loss) from continuing operations before income taxes

    363     (2,614 )   719     (2,258 )

Income tax (expense) benefit

    (51 )   60     (104 )   (24 )
                   
 

Income (loss) from continuing operations

    312     (2,554 )   615     (2,282 )

Loss from discontinued operations, net of income taxes

        (12 )       (7 )
                   
 

Net income (loss)

    312     (2,566 )   615     (2,289 )

Less: noncontrolling interest in subsidiaries net income

    2     1     3     1  
                   
 

Net income (loss) attributable to Tyco common shareholders

  $ 310   $ (2,567 ) $ 612   $ (2,290 )
                   

Amounts attributable to Tyco common shareholders:

                         
 

Income (loss) from continuing operations

  $ 310   $ (2,555 ) $ 612   $ (2,283 )
 

Loss from discontinued operations

        (12 )       (7 )
                   
 

Net income (loss) attributable to Tyco common shareholders

  $ 310   $ (2,567 ) $ 612   $ (2,290 )
                   

Basic earnings per share attributable to Tyco common shareholders:

                         
 

Income (loss) from continuing operations

  $ 0.65   $ (5.40 ) $ 1.29   $ (4.83 )
 

Loss from discontinued operations

        (0.02 )       (0.01 )
                   
 

Net income (loss) attributable to Tyco common shareholders

  $ 0.65   $ (5.42 ) $ 1.29   $ (4.84 )
                   

Diluted earnings per share attributable to Tyco common shareholders:

                         
 

Income (loss) from continuing operations

  $ 0.65   $ (5.40 ) $ 1.28   $ (4.83 )
 

Loss from discontinued operations

        (0.02 )       (0.01 )
                   
 

Net income (loss) attributable to Tyco common shareholders

  $ 0.65   $ (5.42 ) $ 1.28   $ (4.84 )
                   

Weighted-average number of shares outstanding:

                         
 

Basic

    476     473     476     473  
 

Diluted

    478     473     479     473  

See Notes to Consolidated Financial Statements.

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TYCO INTERNATIONAL LTD.

CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(in millions, except share data)

 
  March 26,
2010
  September 25,
2009
 

Assets

             

Current Assets:

             
 

Cash and cash equivalents

  $ 2,733   $ 2,354  
 

Accounts receivable, less allowance for doubtful accounts of $167 and $173, respectively

    2,460     2,629  
 

Inventories

    1,464     1,443  
 

Prepaid expenses and other current assets

    932     972  
 

Deferred income taxes

    408     413  
 

Assets held for sale

        156  
           
   

Total current assets

    7,997     7,967  

Property, plant and equipment, net

    3,501     3,497  

Goodwill

    8,665     8,791  

Intangible assets, net

    2,698     2,647  

Other assets

    2,611     2,651  
           
   

Total Assets

  $ 25,472   $ 25,553  
           

Liabilities and Equity

             

Current Liabilities:

             
 

Loans payable and current maturities of long-term debt

  $ 536   $ 245  
 

Accounts payable

    1,164     1,244  
 

Accrued and other current liabilities

    2,441     2,476  
 

Deferred revenue

    614     590  
 

Liabilities held for sale

        161  
           
   

Total current liabilities

    4,755     4,716  

Long-term debt

    3,995     4,029  

Deferred revenue

    1,110     1,134  

Other liabilities

    2,689     2,720  
           
   

Total Liabilities

    12,549     12,599  
           

Commitments and Contingencies (see Note 10)

             

Tyco Shareholders' Equity:

             
 

Common shares, CHF 6.70 par value, 814,801,671 shares authorized, 479,346,720 shares issued as of March 26, 2010; CHF 7.60 par value, 814,801,671 shares authorized, 479,346,720 shares issued as of September 25, 2009

    2,723     3,122  
 

Common shares held in treasury, 4,003,269 and 5,182,984 shares, as of March 26, 2010 and September 25, 2009, respectively

    (165 )   (214 )
 

Contributed surplus

    10,963     10,940  
 

Accumulated deficit

    (208 )   (820 )
 

Accumulated other comprehensive loss

    (406 )   (87 )
           
   

Total Tyco Shareholders' Equity

    12,907     12,941  
 

Noncontrolling interest

    16     13  
           
   

Total Equity

    12,923     12,954  
           
   

Total Liabilities and Equity

  $ 25,472   $ 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 Six Months Ended  
 
  March 26,
2010
  March 27,
2009
 

Cash Flows From Operating Activities:

             

Net income (loss) attributable to Tyco common shareholders

  $ 612   $ (2,290 )
 

Noncontrolling interest in subsidiaries net income

    3     1  
 

Loss from discontinued operations, net of income taxes

        7  
           

Income (loss) from continuing operations

    615     (2,282 )

Adjustments to reconcile net cash provided by operating activities:

             
 

Goodwill and intangible asset impairments

        2,705  
 

Depreciation and amortization

    569     559  
 

Non-cash compensation expense

    63     52  
 

Deferred income taxes

    (35 )   (182 )
 

Provision for losses on accounts receivable and inventory

    64     69  
 

Other non-cash items

    (23 )   35  
 

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

             
   

Accounts receivable, net

    66     162  
   

Inventories

    (73 )   21  
   

Prepaid expenses and other current assets

    20     (287 )
   

Accounts payable

    (52 )   (376 )
   

Accrued and other liabilities

    (202 )   190  
   

Income taxes, net

        22  
   

Other

    (1 )   94  
           
     

Net cash provided by operating activities

    1,011     782  
           
     

Net cash used in discontinued operating activities

        (13 )
           

Cash Flows From Investing Activities:

             

Capital expenditures

    (335 )   (331 )

Proceeds from disposal of assets

    19     4  

Acquisition of businesses, net of cash acquired

    (152 )   (47 )

Accounts purchased by ADT

    (266 )   (231 )

Divestiture of businesses, net of cash retained

    28     8  

Other

    11     (6 )
           
     

Net cash used in investing activities

    (695 )   (603 )
           
     

Net cash provided by discontinued investing activities

        32  
           

Cash Flows From Financing Activities:

             

Net repayments of short-term debt

    (243 )   (551 )

Proceeds from issuance of long-term debt

    498     2,165  

Repayment of long-term debt

    (9 )   (1,634 )

Proceeds from exercise of share options

    9     1  

Dividends paid

    (214 )   (189 )

Repurchase of common shares by subsidiary

        (3 )

Transfer from discontinued operations

        19  

Other

    21     (5 )
           
     

Net cash provided by (used in) financing activities

    62     (197 )
           
     

Net cash used in discontinued financing activities

        (19 )
           

Effect of currency translation on cash

    1     (82 )
           

Net increase (decrease) in cash and cash equivalents

    379     (100 )

Cash and cash equivalents at beginning of period

    2,354     1,519  
           

Cash and cash equivalents at end of period

  $ 2,733   $ 1,419  
           

See Notes to Consolidated Financial Statements.

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TYCO INTERNATIONAL LTD.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (UNAUDITED)

For the Six Months Ended March 26, 2010 and March 27, 2009

(in millions)

 
  Number of
Common
Shares
  Common
Shares at
Par Value
(see Note
12)
  Common
Shares
$0.80 Par
Value
  Treasury
Shares
  Share
Premium
  Contributed
Surplus
  Accumulated
Earnings
(Deficit)
  Accumulated
Other
Comprehensive
Income
(Loss)
  Total Tyco
Shareholders'
Equity
  Noncontrolling
Interest
  Total
Equity
 

Balance as of September 26, 2008

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

Comprehensive income:

                                                                   
 

Net loss

                                        (2,290 )         (2,290 )   1     (2,289 )
 

Currency translation

                                              (951 )   (951 )   (1 )   (952 )
 

Unrealized gain on marketable securities and derivative instruments net of income taxes of $2 million

                                              5     5           5  
 

Change in unrecognized loss and prior service cost (credit), net of income taxes of $4 million

                                              7     7           7  
                                                                 
 

Total comprehensive loss

                                                    (3,229 )         (3,229 )

Change of Domicile (see Note 12)

                                                                   
   

Reclassification of shares owned by subsidiaries and cancellation of common shares held in treasury

          1           (54 )         53                            
   

Reverse share split and issuance of fully paid up shares

          3,498     (382 )         (3,116 )                                
   

Reallocation of share premium to contributed surplus

                            (6,120 )   6,120                            

Dividends declared (see Note 12)

          (377 )                           (95 )         (472 )         (472 )

Vesting of share based equity awards tax effect

                                  (10 )               (10 )         (10 )

Repurchase of common shares by subsidiary

                                  (3 )               (3 )         (3 )

Compensation expense

                                  53                 53           53  

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

                                  (6 )               (6 )   (3 )   (9 )
                                               

Balance as of March 27, 2009

    473   $ 3,122   $   $ (246 ) $   $ 10,918   $ (1,265 ) $ (646 ) $ 11,883   $ 11   $ 11,894  
                                               

 

 
  Number of
Common
Shares
  Common
Shares at
Par Value
(See Note
12)
  Treasury
Shares
  Contributed
Surplus
  Accumulated
Earnings
(Deficit)
  Accumulated
Other
Comprehensive
Income
(Loss)
  Total Tyco
Shareholders'
Equity
  Noncontrolling
Interest
  Total
Equity
 

Balance as of September 25, 2009

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

Comprehensive income:

                                                       
 

Net income

                            612           612     3     615  
 

Currency translation

                                  (336 )   (336 )         (336 )
 

Retirement plans, net of income tax benefit of $8 million

                                  17     17           17  
                                                   
 

Total comprehensive income

                                        293     3     296  

Dividends declared (see Note 12)

          (399 )                           (399 )         (399 )

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

    1           49     (40 )               9           9  

Compensation expense

                      63                 63           63  
                                       

Balance as of March 26, 2010

    475   $ 2,723   $ (165 ) $ 10,963   $ (208 ) $ (406 ) $ 12,907   $ 16   $ 12,923  
                                       

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 income (loss), net income (loss) 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. Revenue related to the sale of such electronic tags and labels reflected as service revenue was $65 million and $142 million and related cost of services was $40 million and $87 million for the quarter and six months ended March 27, 2009, respectively.

        References to 2010 and 2009 are to Tyco's fiscal quarters ending March 26, 2010 and March 27, 2009, 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 14.

        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 was 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

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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)


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 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 and six months ended March 26, 2010.

        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 was 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. The guidance was adopted in two phases. Tyco adopted the fair value provisions relating to financial assets and liabilities in the first quarter of 2009 and for 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 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 that are to be performed be allocated at inception. The residual method under the existing accounting guidance has been eliminated. The guidance

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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)


expands the disclosure requirements related to multiple-deliverable revenue arrangements. The guidance becomes effective for revenue arrangements entered into or materially modified beginning in the first quarter of fiscal 2011. 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.

        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 an 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 concurrently 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.

        During the fourth quarter of 2009, the Company approved a plan to sell its french security business, which was part of the Company's ADT Worldwide segment. This business has been classified as held for sale as of September 25, 2009; however, its results of operations were presented in continuing operations as the criteria for discontinued operations have not been met. During March 2010, the Company completed the sale and recorded a $53 million pre-tax gain within restructuring, asset impairment and (gain)/loss on divestitures, net in the Company's Consolidated Statement of Operations.

        During the third quarter of 2008, the Company approved a plan to sell a business in its Safety Products segment. This business had been classified as held for sale in the Company's historical Consolidated Balance Sheet. During the second quarter of 2009, due to a change in strategy by management, the Company decided not to sell the business. As a result, the business no longer satisfied the requirements to be classified as held for sale. The Company measured the business at the lower of its (i) carrying amount before it was classified as held for sale, adjusted for depreciation and amortization expense that would have been recognized had the business been continuously classified as

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TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

2.    Divestitures (Continued)


held and used, or (ii) fair value at the date the decision not to sell was made. The Company recorded a charge of $8 million in the second quarter of 2009 relating to the amount of depreciation and amortization expense that would have been recorded had the asset been continuously classified as held and used.

Discontinued Operations

        In July 2008, the Company substantially completed the sale of its Infrastructure Services business, which met the criteria to be presented as discontinued operations. In order to complete the sale of Earth Tech Brasil Ltda. ("ET Brasil") and Earth Tech UK businesses and certain assets in China, the Company was required to obtain consents and approvals to transfer the legal ownership of the businesses and assets. On January 22, 2009 the Company received the necessary consents and approvals to transfer the legal ownership of its ET Brasil business to Corioca Christiani-Nielsen Engenharia S.A. and received cash proceeds of approximately $13 million. On February 27, 2009 the Company received the necessary consents to transfer certain of the China assets and received cash proceeds of $18 million. At March 27, 2009, the necessary consents and approvals for Earth Tech UK and the remaining assets in China had not been obtained by the Company. At March 27, 2009, the Company had assessed and determined that the carrying value of the remaining assets were recoverable based on current fair value, less cost to sell. The remaining consents and approvals for the other businesses and assets were obtained during the second half of fiscal 2009.

        Net revenue, income from operations, loss on sale and income tax expense for discontinued operations are as follows ($ in millions):

 
  For the
Quarter Ended
  For the
Six Months Ended
 
 
  March 27,
2009
  March 27,
2009
 

Net revenue

  $ 1   $ 8  
           

Pre-tax income from discontinued operations

  $ 1   $ 4  

Pre-tax loss on sale of discontinued operations

    (8 )   (5 )

Income tax expense

    (5 )   (6 )
           

Loss from discontinued operations, net of income taxes

  $ (12 ) $ (7 )
           

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TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

2.    Divestitures (Continued)

        Balance sheet information for pending divestitures as of September 25, 2009, is as follows ($ in millions):

 
  September 25,
2009
 

Accounts receivable, net

  $ 39  

Inventories

    2  

Prepaid expenses and other current assets

    22  

Property, plant and equipment, net

    22  

Goodwill and intangible assets, net

    9  

Other assets

    62  
       
 

Total assets

  $ 156  
       

Accounts payable

  $ 22  

Accrued and other current liabilities

    67  

Other liabilities

    72  
       
 

Total liabilities

  $ 161  
       

        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 and six months ended March 27, 2009, nil and $4 million, respectively, of other items was recorded as an increase to shareholders' equity. There were no adjustments during the quarter and six months ended March 26, 2010. 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.

(Gain)/Loss on divestitures, net

        During the quarter and six months ended March 26, 2010, the Company recorded a net gain of $45 million and $44 million, respectively, in restructuring, asset impairment and (gain)/loss on divestitures, 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. The net gain for the quarter and six months ended March 26, 2010 includes the $53 million gain recognized upon the sale of the Company's french security business.

        During the quarter and six months ended March 27, 2009, the Company recorded $1 million gain and $1 million loss, respectively, in restructuring, asset impairment and (gain)/loss on divestitures, net in the Company's Consolidated Statements of Operations in connection with the divestiture and write-down to fair value of certain businesses that did not meet the criteria for discontinued operations.

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TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

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 and six months ended March 26, 2010, the Company incurred charges of $21 million and $32 million, respectively. The Company has incurred $261 million of restructuring charges cumulative to date relating to the 2009 Program.

        Restructuring and asset impairment charges, net, during the quarter and six months ended March 26, 2010 and March 27, 2009 related to the 2009 Program are as follows ($ in millions):

 
  For the Quarter Ended March 26, 2010  
 
  Employee
Severance
and Benefits
  Facility
Exit and
Other
Charges
  Charges
Reflected in
Cost of Sales
  Total  

ADT Worldwide

  $ 2   $ 2   $   $ 4  

Flow Control

    7     1     1     9  

Fire Protection Services

    5             5  

Electrical and Metal Products

        1         1  

Safety Products

    1     1         2  
                   

Total

  $ 15   $ 5   $ 1   $ 21  
                   

 

 
  For the Quarter Ended March 27, 2009  
 
  Employee
Severance
and Benefits
  Facility
Exit and
Other
Charges
  Charges
Reflected in
Cost of Sales
  Charges
Reflected in
SG&A
  Total  

ADT Worldwide

  $ 37   $ 9   $ 6   $ 1   $ 53  

Flow Control

    2     1     1         4  

Fire Protection Services

    10                 10  

Electrical and Metal Products

    1         4         5  

Safety Products

    15         5         20  

Corporate and Other

    1     4         1     6  
                       

Total

  $ 66   $ 14   $ 16   $ 2   $ 98  
                       

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TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

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

 

 
  For the Six Months Ended March 26, 2010  
 
  Employee
Severance
and Benefits
  Facility
Exit and
Other
Charges
  Charges
Reflected in
Cost of Sales
  Charges
Reflected in
SG&A
  Total  

ADT Worldwide

  $ 6   $ 3   $   $   $ 9  

Flow Control

    12     2     1         15  

Fire Protection Services

    7             1     8  

Electrical and Metal Products

        1             1  

Safety Products

    1     (2 )           (1 )
                       

Total

  $ 26   $ 4   $ 1   $ 1   $ 32  
                       

 

 
  For the Six Months Ended March 27, 2009  
 
  Employee
Severance
and Benefits
  Facility
Exit and
Other
Charges
  Charges
Reflected in
Cost of Sales
  Charges
Reflected in
SG&A
  Total  

ADT Worldwide

  $ 37   $ 9   $ 6   $ 3   $ 55  

Flow Control

    3     1     2         6  

Fire Protection Services

    10                 10  

Electrical and Metal Products

    1         5         6  

Safety Products

    15         5         20  

Corporate and Other

    1     4         1     6  
                       

Total

  $ 67   $ 14   $ 18   $ 4   $ 103  
                       

        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

  $ 72   $ 22   $ 9   $ 5   $ 108  

Flow Control

    30     6     3         39  

Fire Protection Services

    51     1         1     53  

Electrical and Metal Products

    10     3     7         20  

Safety Products

    24         8         32  

Corporate and Other

    1     8             9  
                       

Total

  $ 188   $ 40   $ 27   $ 6   $ 261  
                       

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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 March 26, 2010 is as follows ($ in millions):

Balance as of September 25, 2009

  $ 130  

Charges

    40  

Reversals

    (6 )

Utilization

    (70 )

Reclass/transfers

    (1 )

Currency translation

    (5 )
       

Balance as of March 26, 2010

  $ 88  
       

        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 maintained a restructuring reserve related to the 2007 Program of $32 million and $59 million as of March 26, 2010 and September 25, 2009, respectively. The Company utilized $25 million of the restructuring reserve balance during the six months ended March 26, 2010. In addition, the Company continues to maintain restructuring reserves related to certain actions initiated prior to 2006. The total amount of these reserves were $14 million as of March 26, 2010 and $15 million as of 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 $5 million of charges related to the 2007 Program and pre-2006 actions during the quarters ended March 26, 2010 and March 27, 2009, respectively. The Company incurred nil and $5 million of charges related to the 2007 Program and pre-2006 actions for the six months ended March 26, 2010 and March 27, 2009, respectively.

        At March 26, 2010 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):

 
  March 26,
2010
  September 25,
2009
 

Accrued and other current liabilities

  $ 92   $ 159  

Other liabilities

    42     45  
           

Total

  $ 134   $ 204  
           

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TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

4.    Acquisitions

Acquisitions

        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 is expected to be financed with cash of up to approximately $600 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 shortly after the special meeting of BHS shareholders scheduled for May 12, 2010 assuming all closing conditions are met or waived. Following the closing of the transaction, the Company intends to combine BHS with its ADT Worldwide segment. In conjunction with the acquisition of BHS, the Company has incurred acquisition costs of $4 million, which are recorded in selling, general and administrative expenses in the Company's Consolidated Statement of Operations for the quarter and six months ended March 26, 2010.

        During the quarter and six months ended March 26, 2010, cash paid for acquisitions included in continuing operations totaled $9 million and $152 million, respectively, net of cash acquired of nil and $1 million, respectively, 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 the Brazilian valve companies totaled $104 million by the Company's Flow Control segment. In addition, the Company's Electrical and Metal Products segment acquired certain assets of a business for $39 million and its Safety Products segment acquired a business for $9 million.

        During the quarter and six months ended March 27, 2009, cash paid for acquisitions included in continuing operations totaled $2 million and $47 million, respectively, net of cash acquired of $1 million and $2 million, respectively, 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 105,000 and 234,000 customer contracts for electronic security services within the Company's ADT Worldwide segment for $120 million and $271 million during the quarter and six months ended March 26, 2010, respectively. Of these amounts, $113 million and $261 million was paid during the quarter and six months ended March 26, 2010, respectively. Additionally, the Company paid $3 million during the quarter ended March 26, 2010 for customer contracts acquired during the quarter ended December 25, 2009. The Company also paid $2 million during the quarter ended December 25, 2009 for customer contracts acquired during the quarter ended September 25, 2009.

        Tyco acquired approximately 92,000 and 222,000 customer contracts for electronic security services within the Company's ADT Worldwide segment for $98 million and $229 million during the quarter and six months ended March 27, 2009, respectively. Of these amounts, $92 million and $201 million was paid during the quarter and six months ended March 27, 2009, respectively. Additionally, the Company paid $22 million during the quarter ended March 27, 2009 for customer contracts acquired during the quarter ended December 26, 2008. The Company also paid $8 million during the quarter ended December 26, 2008 for customer contracts acquired during the quarter ended September 26, 2008.

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TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

5.    Income Taxes

        The Company did not have a significant change to its unrecognized tax benefits during the quarter ended March 26, 2010.

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

Jurisdiction
  Years Open To
Audit
 

Australia

    2004-2009  

Canada

    2000-2009  

France

    1999-2009  

Germany

    1998-2009  

Switzerland

    2000-2009  

United Kingdom

    2000-2009  

United States

    1997-2009  

        Based on the current status of its income tax audits, the Company believes that it is reasonably possible that between nil and $100 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 March 26, 2010, the Company had recorded deferred tax assets of $1.5 billion, net of valuation allowances of $804 million. Depending on prevailing economic conditions future taxable income of entities with deferred tax assets may be negatively impacted, which may require additional valuation allowances to be recorded in future reporting periods related to the Company's deferred tax assets.

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 $117 million and $106 million, as of March 26, 2010

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TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

5.    Income Taxes (Continued)


and September 25, 2009, respectively. As of March 26, 2010 and September 25, 2009, $114 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 $554 million as of March 26, 2010 and September 25, 2009 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 March 26, 2010 and March 27, 2009, the Company recorded income of $2 million and $1 million, respectively, in accordance with the Tax Sharing agreement. For the six months ended March 26, 2010 and March 27, 2009, the Company recorded income of $11 million and $5 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 applicable 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 Internal Revenue Service ("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, 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 17 for further discussion of guarantees and indemnifications extended between Tyco, Covidien and Tyco Electronics.

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TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

5.    Income Taxes (Continued)

Other Income Tax Matters

        The Company and its subsidiaries' income tax returns are examined periodically by various tax authorities. In connection with these examinations, tax authorities, including the IRS, have raised issues and proposed tax adjustments. 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.

        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

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TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

5.    Income Taxes (Continued)


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 is not required to compute earnings per share for fiscal 2010 using the two-class method unless new awards are granted. The retrospective application of this guidance for the quarter and six months ended March 27, 2009 did not have an impact on the Company's historically reported earnings per share as the effects would be anti-dilutive because the Company reported a loss from continuing operations.

        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
March 26, 2010
  Quarter Ended
March 27, 2009
 
 
  Income   Shares   Per Share
Amount
  Loss   Shares   Per Share
Amount
 

Basic earnings per share attributable to Tyco common shareholders:

                                     
 

Income (loss) from continuing operations

  $ 310     476   $ 0.65   $ (2,555 )   473   $ (5.40 )
 

Less: Income allocated to participating securities

    NA (1)             NA (2)          
 

Share options and restricted share awards

        2                        

Diluted earnings per share attributable to Tyco common shareholders:

                                     
 

Add: Income allocated to participating securities

    NA (1)             NA (2)          
                               

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

  $ 310     478   $ 0.65   $ (2,555 )   473   $ (5.40 )
                           

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TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

6.    Earnings Per Share (Continued)

 
  Six Months
Ended March 26, 2010
  Six Months
Ended March 27, 2009
 
 
  Income   Shares   Per Share
Amount
  Loss   Shares   Per Share
Amount
 

Basic earnings per share attributable to Tyco common shareholders:

                                     
 

Income (loss) from continuing operations

  $ 612     476   $ 1.29   $ (2,283 )   473   $ (4.83 )
 

Less: Income allocated to participating securities

    NA (1)             NA (2)          
 

Share options and restricted share awards

        3                        

Diluted earnings per share attributable to Tyco common shareholders:

                                     
 

Add: Income allocated to participating securities

    NA (1)             NA (2)          
                               

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

  $ 612     479   $ 1.28   $ (2,283 )   473   $ (4.83 )
                           

(1)
The two-class method is not applicable for the quarter and six months ended March 26, 2010 as all participating securities were vested as of September 25, 2009.

(2)
The two-class method is not applicable for the quarter and six months ended March 27, 2009 as the effects would be anti-dilutive because the Company reported a loss from continuing operations for both periods.

        The computation of diluted earnings per share for the quarter and six months ended March 26, 2010 excludes the effect of the potential exercise of options to purchase approximately 16 million shares in both periods and excludes restricted share awards of approximately 2 million shares in both periods because the effect would be anti-dilutive.

        The computation of diluted earnings per share for the quarter and six months ended March 27, 2009 excludes the effect of the potential exercise of options to purchase approximately 27 million shares in both periods and excludes restricted share awards of approximately 6 million shares in both periods because the effect would be anti-dilutive.

7.    Goodwill and Intangible Assets

Goodwill

        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 forecast 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

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TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

7.    Goodwill and Intangible Assets (Continued)


considers a number of factors, including operating results, business plans, economic projections, including expectations and assumptions regarding the timing and degree of any economic recovery, anticipated future cash flow, comparable market transactions (to the extent available), other market data and the Company's overall market capitalization.

        During the first six months of fiscal 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 described above and concluded its remaining goodwill balance of $8.7 billion as of March 26, 2010 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 forecast cash flows of certain of its 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. 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 $842 million as of March 26, 2010. Fair value determinations require considerable judgment and are sensitive to changes in underlying assumptions and factors. As a result, there can be no assurance that the estimates and assumptions made for purposes of the annual goodwill impairment test will prove to be accurate predictions of the future. While historical performance and current expectations have resulted in fair values of goodwill in excess of carrying values, if our assumptions are not realized, it is possible that in the future an impairment charge may need to be recorded. However, it is not possible at this time to determine if an impairment charge would result or if such a charge would be material.

        During 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 was recoverable.

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TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

7.    Goodwill and Intangible Assets (Continued)

        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

        76             76  

Divestitures

    (4 )   (5 )   (1 )   (9 )   (19 )

Goodwill transfer due to realignment

    113         23     (136 )    

Currency translation

    (85 )   (91 )   4     (11 )   (183 )
                       

Balance as of March 26, 2010

  $ 4,326   $ 1,973   $ 1,360   $ 1,006   $ 8,665  
                       

Second Quarter 2009 Goodwill Impairment

        The Company began to experience a decline in revenue during the first quarter of 2009 in its ADT Worldwide, Fire Protection Services and Safety Products segments as a result of a slowdown in the commercial markets including the retailer end market as well as a decline in sales volume at its Electrical and Metal Products segment due to the slow down in the non-residential construction market. Although the Company considered and concluded that these factors did not constitute triggering events during the first quarter of 2009, the continued existence of these conditions during the second quarter of 2009, along with downward revisions to forecast results, restructuring actions and weaker industry outlooks, caused the Company to conclude that sufficient indicators of impairment existed for certain reporting units in the above mentioned businesses. The Company determined that these events and changes in circumstances constituted triggering events for the following six reporting units: Europe, Middle East and Africa ("EMEA") Security and EMEA Fire reporting units within the ADT Worldwide and Fire Protection Services segments, respectively, Electrical and Metal Products reporting unit within the Electrical and Metal Products segment and Access Control and Video Systems ("ACVS"), Life Safety, and Sensormatic Retail Solutions ("SRS") reporting units within the Safety Products segment. As a result of the triggering events, the Company assessed the recoverability of each of the reporting unit's long-lived assets and concluded that the carrying amounts were recoverable at March 27, 2009. Subsequently, the Company performed the first step of the goodwill impairment test for these reporting units.

        To perform the first step of the goodwill impairment test for the six reporting units with triggering events, the Company compared the carrying amounts of these reporting units to their estimated fair values. Fair value for each reporting unit was determined utilizing a discounted cash flow analysis based on forecast cash flows (including estimated underlying revenue and operating income growth rates) discounted using an estimated weighted average cost of capital of market participants. A market approach, utilizing observable market data such as comparable companies in similar lines of business that are publically traded or which are part of a public or private transaction (to the extent available), was used to corroborate the discounted cash flow analysis performed at each reporting unit. If the carrying amount of a reporting unit exceeded its fair value, goodwill was considered potentially impaired. In determining fair value, management relied on and considered a number of factors, including operating results, business plans, economic projections, including expectations and assumptions regarding the timing and degree of any economic recovery, anticipated future cash flow,

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

7.    Goodwill and Intangible Assets (Continued)


comparable market transactions (to the extent available), other market data and the Company's overall market capitalization.

        As described above, the Company utilized a discounted cash flow analysis for determining the fair value of each of the reporting units where triggering events had occurred. Based on the factors described above, actual and anticipated reductions in demand for the reporting unit's products and services as well as increased risk due to current economic uncertainty, the estimates of future cash flows used in the second quarter of 2009 discounted cash flow analyses were revised downward from the Company's most recent test conducted during the fourth quarter of 2008. The range of the weighted-average cost of capital utilized was increased to reflect increased risk due to current economic volatility and uncertainties related to demand for the Company's products and services. The weighted-average cost of capital were as follows:

 
  Second Quarter
of 2009
  Fourth Quarter
of 2008

Weighted-Average Cost of Capital

  10.9% to 12.8%   10.0% to 11.7%

        The results of the first step of the goodwill impairment test indicated there was a potential impairment of goodwill in each of the six reporting units identified with triggering events, as the carrying amounts of the reporting units exceeded their respective fair values. As a result, the Company performed the second step of the goodwill impairment test for these reporting units. In the second step of the goodwill impairment test, the Company compared the implied fair value of reporting unit goodwill with the carrying amount of the reporting unit's goodwill. The implied fair values of goodwill were determined by allocating the fair values of each reporting unit to all of the assets and liabilities of the applicable reporting unit including any unrecognized intangible assets as if the reporting unit had been acquired in a business combination. The results of the second step of the goodwill impairment test indicated that the implied goodwill amount was less than the carrying amount of goodwill for each of the aforementioned reporting units. The Company recorded an aggregate non-cash impairment charge of $2.6 billion ($2.6 billion after-tax) which was recorded in goodwill and intangible asset impairments in the Company's Consolidated Statement of Operations for the quarter and six months ended March 27, 2009. Specifically, the Company recorded the following non-cash goodwill impairment charges at the following reporting units ($ in millions):

Reporting Unit
  Pre-tax
Charge
  After-tax
Charge
 

EMEA Fire

  $ 180   $ 179  

EMEA Security

    613     610  

Electrical and Metal Products

    935     913  

ACVS

    327     321  

Life Safety

    240     236  

SRS

    346     340  
           

Total

  $ 2,641   $ 2,599  
           

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TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

7.    Goodwill and Intangible Assets (Continued)

Intangible Assets

        During the first six months of fiscal 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 March 26, 2010 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, 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 March 26, 2010 and September 25, 2009 ($ in millions):

 
  March 26, 2010   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

  $ 6,809   $ 4,498   14 years   $ 6,529   $ 4,275   14 years
 

Intellectual property

    552     473   20 years     552     462   20 years
 

Other

    15     12   10 years     17     13   10 years
                         
 

Total

  $ 7,376   $ 4,983   14 years   $ 7,098   $ 4,750   14 years
                         

Non-Amortizable:

                               
 

Intellectual property

  $ 213             $ 212          
 

Other

    92               87          
                             
 

Total

  $ 305             $ 299          
                             

        Intangible asset amortization expense for the quarters ended March 26, 2010 and March 27, 2009 was $127 million and $129 million, respectively. Intangible asset amortization expense was $256 million for both the six months ended March 26, 2010 and March 27, 2009, respectively.

        The estimated aggregate amortization expense on intangible assets is expected to be approximately $247 million for the remainder of 2010, $409 million for 2011, $343 million for 2012, $293 million for 2013, $243 million for 2014 and $199 million for 2015.

Second Quarter 2009 Intangible Asset Impairment

        The Company began to experience a decline in revenue during the first quarter of 2009 at its ADT Worldwide and Safety Products segments due to a slowdown in the commercial markets including the retailer end market. Although the Company considered and concluded these factors did not constitute triggering events during the first quarter of 2009, the continued existence of these conditions during the second quarter of 2009, along with downward revisions to forecast results, restructuring actions and weaker industry outlooks, caused the Company to conclude that sufficient indicators of impairment existed for certain indefinite-lived intangible assets. This deterioration of the business environment

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TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

7.    Goodwill and Intangible Assets (Continued)


related to the retailer business of the Company's ADT Worldwide and Safety Products segments resulted in a further lowering of management's projections of revenues from the retailer end market during the second quarter of 2009.

        Based on these factors and uncertainties and factors described above, estimates of future cash flows used in determining the fair value of the Company's Safety Products Sensormatic tradename as well as its ADT Worldwide franchise rights relating to Winner and Sensormatic Security Corp ("SSC") during the second quarter of 2009 were revised downward relative to the estimates used in the Company's most recent test during the fourth quarter of 2008. The range of the discount rates utilized was increased to reflect increased risk due to current economic volatility and uncertainties related to demand for the Company's products and services. The discount rates were as follows:

 
  Second Quarter
of 2009
  Fourth Quarter
of 2008
 

Discount Rate

  12.0% to 12.3%     10.4 %

        The results of the impairment test indicated that the Safety Products Sensormatic tradename and ADT Worldwide Winner and SSC franchise rights estimated fair values were less than their respective carrying amounts. As such, the Company recorded an aggregate non-cash impairment charge of $64 million ($40 million after-tax) which was recorded in goodwill and intangible asset impairments in the Company's Consolidated Statement of Operations for the quarter ended March 27, 2009. Specifically, the Company recorded the following non-cash intangible asset impairment charges to reduce the carrying amount of the following indefinite-lived intangible assets (in millions):

Intangible Asset
  Pre-tax
Charge
  After-tax
Charge
 

Sensormatic tradename

  $ 42   $ 26  

Winner franchise rights

    14     9  

SSC franchise rights

    8     5  
           

Total

  $ 64   $ 40  
           

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TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

8.    Debt

        Debt as of March 26, 2010 and September 25, 2009 is as follows ($ in millions):

 
  March 26,
2010
  September 25,
2009
 

Commercial paper(2)

  $   $ 200  

6.75% public notes due 2011(1)

    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)

    86     119  
           

Total debt

    4,531     4,274  

Less current portion

    536     245  
           

Long-term debt

  $ 3,995   $ 4,029  
           

(1)
6.75% public notes due 2011, plus $20 million of the amount shown as other, comprise the current portion of the Company's total debt as of March 26, 2010.

(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 March 26, 2010 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 $4,933 million and $4,578 million as of March 26, 2010 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 March 26, 2010 and September 25, 2009, the fair value of the Company's debt which is actively traded was $4,901 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 March 26, 2010 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 March 26, 2010, TIFSA

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TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

8.    Debt (Continued)


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%.

        The Company's total committed revolving credit line was $1.69 billion as of March 26, 2010. These revolving credit facilities may be used for working capital, capital expenditures and general corporate purposes. As of March 26, 2010, there were no amounts drawn under these facilities. On January 29, 2009, the Company repaid $686 million to extinguish the entire outstanding balance under its revolving credit facilities. As of September 25, 2009, there were no amounts drawn under these facilities, although the Company had dedicated $200 million of availability to backstop its outstanding commercial paper.

        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.

        On January 9, 2009, TIFSA issued $750 million aggregate principal amount of 8.5% notes due on January 15, 2019, which are fully and unconditionally guaranteed by the Company (the "2019 notes"). TIFSA received net proceeds of approximately $745 million after underwriting discounts and offering expenses. The Company may be required to repurchase all or part of the 2019 Notes at par in July of 2014 at the option of the noteholders.

        On January 15, 2009, TIFSA made a payment of $215 million to extinguish all of its 6.125% notes, due 2009 which matured on the same date. Additionally, in November 2008, TIFSA made a payment of $300 million to extinguish all of its 6.125% notes due 2008.

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 March 26, 2010 and September 25, 2009. The fair value of derivative financial instruments was not material to any of the periods presented. See below for the fair value of investments 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

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TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

9.    Financial Instruments (Continued)


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 fiscal 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 of March 26, 2010 and September 25, 2009, the total gross notional amount of the Company's foreign exchange contracts was $715 million and $525 million, respectively. 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 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. As of March 26, 2010 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.

        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 and six months ended March 26, 2010.

        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. The derivative financial instruments and impact of such changes in the fair value of the derivative financial instruments was not material to the Consolidated Balance Sheets as of March 26, 2010 and September 25, 2009 or Consolidated Statements of Operations for the quarters and six months ended March 26, 2010 and March 27, 2009.

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TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

9.    Financial Instruments (Continued)

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 March 26, 2010, 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 March 26, 2010 without giving consideration to the effects of legally enforceable master netting agreements, was approximately $17 million.

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.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

9.    Financial Instruments (Continued)

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 market approach 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 market approach 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. Derivative financial instruments are not presented in the following tables as the derivative financial instruments were not material to any of the periods presented.

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 March 26, 2010 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 March 26, 2010  
($ in millions)
  Level 1   Level 2   Total  

Assets

                   

Available-for-Sale Securities:

                   
 

Corporate debt securities

  $   $ 91   $ 91  
 

U.S. Government debt securities

    62     177     239  
 

Other debt securities

        4     4  
               

Total

  $ 62   $ 272   $ 334  
               

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

9.    Financial Instruments (Continued)

 

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

Assets

                   

Available-for-Sale Securities:

                   
 

Corporate debt securities

  $   $ 104   $ 104  
 

U.S. Government debt securities

    60     171     231  
 

Other debt securities

        5     5  
               

Total

  $ 60   $ 280   $ 340  
               

        During the quarter and six months ended March 26, 2010, the Company did not have any significant transfers within the fair value hierarchy.

Other

        The Company has $2.9 billion and $3.0 billion of intercompany loans designated as permanent in nature as of March 26, 2010 and September 25, 2009, respectively. For the quarters ended March 26, 2010 and March 27, 2009, the Company recorded $78 million and $29 million, respectively, of cumulative transaction loss through accumulated other comprehensive income (loss) related to these loans. For the six months ended March 26, 2010 and March 27, 2009, the Company recorded $115 million and $353 million, respectively, of cumulative transaction loss through accumulated other comprehensive income (loss) related to these loans.

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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

10.    Commitments and Contingencies (Continued)


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 alleged that Tyco, among others, violated the disclosure provisions of the federal securities laws. The matter arose from Tyco's July 2000 initial public offering of common stock of TyCom Ltd, and alleged 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 alleged 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. On May 6, 2010, the United States District Court for the District of New Jersey will hear arguments on a motion requesting preliminary approval of settlement of the Stumpf matter. The proposed settlement is subject to final court approval and the Court has not yet set a date for the final approval hearing. If the settlement receives final court approval, it will be subject to the liability sharing provisions of the Separation and Distribution Agreement with Covidien and Tyco Electronics. The Company believes its remaining reserve related to legacy securities matters is sufficient to satisfy the resolution of this matter.

        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.

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10.    Commitments and Contingencies (Continued)

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 March 26, 2010, Tyco concluded that it was probable that it would incur remedial costs in the range of approximately $28 million to $81 million. As of March 26, 2010, Tyco concluded that the best estimate within this range is approximately $37 million, of which $14 million is included in accrued and other current liabilities and $23 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 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 March 26, 2010, there were approximately 4,400 lawsuits pending against the Company and its subsidiaries. Each lawsuit typically includes several claims, and the Company has determined that there were approximately 5,600 claims outstanding as of March 26, 2010, which amount reflects the Company's current estimate of the number of viable claims made against it or its affiliates, and includes adjustments for claims that are not actively being prosecuted, identify incorrect defendants or are duplicative of other actions.

        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.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

10.    Commitments and Contingencies (Continued)

        As of March 26, 2010, the Company's estimated net liability of $51 million was recorded within the Company's Consolidated Balance Sheet as a liability for pending and future claims and related defense costs of $227 million, and separately as an asset for insurance recoveries of $176 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 March 26, 2010 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 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 since resolved these matters with German authorities. 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 may have a material adverse effect on the Company's financial position, results of operations or cash flows.

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10.    Commitments and Contingencies (Continued)

        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 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, $13.2 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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

10.    Commitments and Contingencies (Continued)


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. In February 2010, the Court granted a directed verdict in ADT's favor dismissing a number of the plaintiff's key claims. 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 earnings (deficit) and accumulated other comprehensive income (loss) 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 (deficit) of $5 million, net 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  
 
  For the Quarters Ended   For the Six Months Ended  
 
  March 26,
2010
  March 27,
2009
  March 26,
2010
  March 27,
2009
 

Service cost

  $ 3   $ 2   $ 5   $ 5  

Interest cost

    12     12     24     25  

Expected return on plan assets

    (12 )   (12 )   (24 )   (25 )

Amortization of prior service cost

        1         1  

Amortization of net actuarial loss

    6     2     13     4  
                   

Net periodic benefit cost

  $ 9   $ 5   $ 18   $ 10  
                   

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

11.    Retirement Plans (Continued)

 

 
  Non-U.S. Plans  
 
  For the Quarters Ended   For the Six Months Ended  
 
  March 26,
2010
  March 27,
2009
  March 26,
2010
  March 27,
2009
 

Service cost

  $ 7   $ 8   $ 14   $ 17  

Interest cost

    19     21     38     41  

Expected return on plan assets

    (17 )   (18 )   (34 )   (36 )

Amortization of prior service cost

    (1 )   (1 )   (2 )   (2 )

Amortization of net actuarial loss

    7     5     14     10  

Plan settlements and curtailments termination benefits

        (1 )       (1 )
                   

Net periodic benefit cost

  $ 15   $ 14   $ 30   $ 29  
                   

        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. During the six months ended March 26, 2010 the Company contributed $2 million to its U.S. pension plans and $44 million to its non-U.S. pension plans, respectively.

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

12.    Shareholders' Equity

    Dividends

        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 registered share capital. As a result, the Company intends to first pay dividends in the form of a reduction of registered share capital until at least January 1, 2011. After January 1, 2011, the Company expects to make dividend payments in the form of a reduction in contributed surplus, which also may be made free of Swiss withholding taxes.

        On March 10, 2010, the Company's shareholders approved an annual dividend on the Company's common shares of CHF 0.90 per share, which will be paid in the form of a return on capital in four installments of CHF 0.22, CHF 0.22, CHF 0.23 and CHF 0.23. The first installment of CHF 0.22 will be paid on May 26, 2010 to shareholders of record on May 14, 2010. While certain administrative steps need to occur to effectuate the dividend payment, approval of the dividend by the shareholders establishes the dividend under Swiss law. As a result, the Company recorded an accrued dividend of CHF 428 million as of March 10, 2010, which approximated $399 million based on the exchange rate in

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

12.    Shareholders' Equity (Continued)


effect on that date. The accrued dividend is recorded in accrued and other current liabilities in the Company's Consolidated Balance Sheet as of March 26, 2010. On the Company's Consolidated Balance Sheet, this amount is recorded as a reduction of common shares, which reduces the par value of the Company's common shares from CHF 7.60 to CHF 6.70. The installments will be paid in U.S. dollars converted from Swiss Francs at the USD/CHF exchange rate in effect shortly before the payment dates. Assuming the BHS acquisition closes before May 26, 2010, BHS shareholders who elect to receive Tyco common stock as consideration in the merger will be entitled to receive dividend payments commencing on May 26, 2010.

        On March 12, 2009, the Company's shareholders approved an annual dividend on the Company's common shares of CHF 0.93 per share, which was paid in the form of a return on capital in four installments of CHF 0.23, CHF 0.23, CHF 0.23 and CHF 0.24 to shareholders of record on April 30, 2009, July 31, 2009, October 30, 2009 and January 29, 2010, respectively. While certain administrative steps need to occur to effectuate the dividend payment, approval by the shareholders establishes the dividend under Swiss law. As a result, the Company recorded an accrued dividend of CHF 440 as of March 12, 2009, which approximated $377 million based on the exchange rate in effect on that date. On the Company's Consolidated Balance Sheet, this amount was recorded as a reduction of common shares, which reduced the par value of the Company's common shares from CHF 8.53 to CHF 7.60. The installments were paid in U.S. dollars converted from Swiss Francs at the USD/CHF exchange rate in effect shortly before the payment dates.

        Prior to the Change of Domicile, on December 4, 2008, the Company's Board of Directors declared a quarterly dividend on the Company's common shares of $0.20 per share, which was paid on February 2, 2009 to shareholders of record on January 5, 2009. This amount was recorded as a reduction of accumulated earnings.

    Common Stock

        As of March 26, 2010, the Company's share capital amounted to CHF 3,642,642,767.60, or 479,295,101 registered common shares with a par value of CHF 7.60 per share. Until March 12, 2011, the Board of Directors may increase the Company's share capital by a maximum amount of CHF 1,821,321,380 by issuing a maximum of 239,647,550 shares. In addition, until March 12, 2011, (i) the share capital of the Company may be increased by an amount not exceeding CHF 364,264,276 through the issue of a maximum of 47,929,510 shares through the exercise of conversion and/or option or warrant rights granted in connection with bonds, notes or similar instruments including convertible debt instruments and (ii) the share capital of the Company may be increased by an amount not exceeding CHF 364,264,276 through the issue of a maximum of 47,929,510 shares to employees and other persons providing services to the Company. Although the Company states its par value in Swiss francs it continues to use the U.S. dollar as its reporting currency for preparing its Consolidated Financial Statements.

    Change in Domicile

        Effective March 17, 2009, the Company changed its jurisdiction of incorporation from Bermuda to the Canton of Schaffhausen, Switzerland. In connection with the Change of Domicile and pursuant to the laws of Switzerland, the par value of the Company's common shares increased from $0.80 per share to 8.53 Swiss Francs (CHF) per share (or $7.21 based on the exchange rate in effect on March 17, 2009). The Change of Domicile was approved at a special general meeting of shareholders held on

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

12.    Shareholders' Equity (Continued)

March 12, 2009. The following steps occurred in connection with the Change of Domicile, which did not result in a change to total Shareholders' Equity:

    (1)
    approximately 21 million shares held directly or indirectly in treasury were cancelled;

    (2)
    the par value of common shares of the Company was increased from $0.80 to CHF 8.53 through an approximate 1-for-9 reverse share split, followed by the issuance of approximately eight fully paid up shares so that the same number of shares were outstanding before and after the Change of Domicile, which reduced share premium and increased common shares; and

    (3)
    the remaining amount of share premium was eliminated with a corresponding increase to contributed surplus.

13.    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.

        During the quarter ended December 26, 2008, the Company issued its annual share-based compensation grants. The total number of awards issued was 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.

14.    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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

14.    Consolidated Segment Data (Continued)


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 March 27, 2009 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   For the Six Months Ended  
 
  March 26,
2010
  March 27,
2009
  March 26,
2010
  March 27,
2009
 

Net revenue(1):

                         
 

ADT Worldwide

  $ 1,767   $ 1,705   $ 3,602   $ 3,516  
 

Flow Control

    899     927     1,822     1,886  
 

Fire Protection Services

    807     813     1,640     1,652  
 

Electrical and Metal Products

    336     330     633     746  
 

Safety Products

    360     375     718     776  
 

Corporate and Other

                 
                   
 

Net revenue

  $ 4,169   $ 4,150   $ 8,415   $ 8,576  
                   

(1)
Revenue by operating segment excludes intercompany transactions.

 
  For the Quarters Ended   For the Six Months Ended  
 
  March 26,
2010
  March 27,
2009
  March 26,
2010
  March 27,
2009
 

Operating income (loss):

                         
 

ADT Worldwide

  $ 305   $ (867 ) $ 564   $ (640 )
 

Flow Control

    93     133     205     270  
 

Fire Protection Services

    62     (121 )   126     (65 )
 

Electrical and Metal Products

    24     (961 )   47     (934 )
 

Safety Products

    47     (537 )   101     (457 )
 

Corporate and Other

    (104 )   (201 )   (202 )   (315 )
                   
 

Operating income (loss)

  $ 427   $ (2,554 ) $ 841   $ (2,141 )
                   

15.    Inventory

        Inventories consisted of the following ($ in millions):

 
  March 26,
2010
  September 25,
2009
 

Purchased materials and manufactured parts

  $ 517   $ 514  

Work in process

    205     207  

Finished goods

    742     722  
           
 

Inventories

  $ 1,464   $ 1,443  
           

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TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

15.    Inventory (Continued)

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

16.    Property, Plant and Equipment

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

 
  March 26,
2010
  September 25,
2009
 

Land

  $ 156   $ 156  

Buildings

    806     788  

Subscriber systems

    5,375     5,309  

Machinery and equipment

    2,431     2,398  

Property under capital leases(1)

    62     62  

Construction in progress

    149     164  

Accumulated depreciation(2)

    (5,478 )   (5,380 )
           
 

Property, Plant and Equipment, net

  $ 3,501   $ 3,497  
           

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

(2)
Accumulated amortization of capital lease assets was $31 million and $28 million as of March 26, 2010 and September 25, 2009, respectively.

17.    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. As of March 26, 2010 and September 25, 2009, the Company maintained a liability of $554 million, which reflected the fair value of the guarantees and indemnification under the Tax Sharing Agreement and was recorded in other liabilities on the Company's Consolidated Balance Sheets. 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.

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TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

17.    Guarantees (Continued)

        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 March 26, 2010 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.

        The Company records estimated product warranty costs at the time of sale. The changes in the carrying amount of the Company's warranty accrual from September 25, 2009 to March 26, 2010 were as follows ($ in millions):

Balance as of September 25, 2009

  $ 81  

Warranties issued

    17  

Changes in estimates

    (6 )

Settlements

    (24 )

Currency translation

    (3 )
       

Balance as of March 26,2010

  $ 65  
       

        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 and six months ended March 26, 2010 include cash expenditures of $3 million and $7 million, respectively, related to the VRP. The Company believes the remaining recorded liability is sufficient to cover the cost required to complete the VRP as of March 26, 2010, which is not material.

40


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TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

18.    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.


CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

For the Quarter Ended March 26, 2010

($ in millions)

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

Net revenue

  $   $   $ 4,169   $   $ 4,169  

Cost of product sales and services

            2,659         2,659  

Selling, general and administrative expenses

    5     2     1,101         1,108  

Restructuring, asset impairment and (gain)/loss on divestitures, net

            (25 )       (25 )
                       
 

Operating (loss) income

    (5 )   (2 )   434         427  

Interest income

            7         7  

Interest expense

        (74 )           (74 )

Other income, net

    3                 3  

Equity in net income of subsidiaries

    658     273         (931 )    

Intercompany interest and fees

    (346 )   155     191          
                       
 

Income from continuing operations before income taxes

    310     352     632     (931 )   363  

Income tax expense

        (22 )   (29 )       (51 )
                       
 

Income from continuing operations

    310     330     603     (931 )   312  

Income from discontinued operations, net of income taxes

                     
                       
 

Net income

    310     330     603     (931 )   312  

Less: noncontrolling interest in subsidiaries net income

            2         2  
                       
 

Net income attributable to Tyco common shareholders

  $ 310   $ 330   $ 601   $ (931 ) $ 310  
                       

41


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TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

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


CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

For the Quarter Ended March 27, 2009

($ in millions)

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

Net revenue

  $   $   $ 4,150   $   $ 4,150  

Cost of product sales and services

            2,715         2,715  

Selling, general and administrative expenses

    122     5     1,073         1,200  

Goodwill and intangible asset impairments

            2,705         2,705  

Restructuring, asset impairment and (gain)/loss on divestitures, net

    2         82         84  
                       
 

Operating loss

    (124 )   (5 )   (2,425 )       (2,554 )

Interest income

            11         11  

Interest expense

        (76 )   (2 )       (78 )

Other income, net

    5     2             7  

Equity in net loss of subsidiaries

    (2,082 )   (2,360 )       4,442      

Intercompany interest and fees

    (354 )   38     316          
                       
 

Loss from continuing operations before income taxes

    (2,555 )   (2,401 )   (2,100 )   4,442     (2,614 )

Income tax benefit

        14     46         60  
                       
 

Loss from continuing operations

    (2,555 )   (2,387 )   (2,054 )   4,442     (2,554 )

Loss from discontinued operations, net of income taxes

    (12 )   (13 )   (12 )   25     (12 )
                       
 

Net loss

    (2,567 )   (2,400 )   (2,066 )   4,467     (2,566 )

Less: noncontrolling interest in subsidiaries net income

            1         1  
                       
 

Net loss attributable to Tyco common shareholders

  $ (2,567 ) $ (2,400 ) $ (2,067 ) $ 4,467   $ (2,567 )
                       

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TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

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


CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

For the Six Months Ended March 26, 2010

($ in millions)

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

Net revenue

  $   $   $ 8,415   $   $ 8,415  

Cost of product sales and services

            5,340         5,340  

Selling, general and administrative expenses

    9     3     2,236         2,248  

Restructuring, asset impairment and (gain)/loss on divestitures, net

            (14 )       (14 )
                       
 

Operating (loss) income

    (9 )   (3 )   853         841  

Interest income

            16         16  

Interest expense

        (147 )   (3 )       (150 )

Other income, net

    12                 12  

Equity in net income of subsidiaries

    1,289     582         (1,871 )    

Intercompany interest and fees

    (680 )   170     510          
                       
 

Income from continuing operations before income taxes

    612     602     1,376     (1,871 )   719  

Income tax expense

        (4 )   (100 )       (104 )
                       
 

Income from continuing operations

    612     598     1,276     (1,871 )   615  

Income from discontinued operations, net of income taxes

                     
                       
 

Net income

    612     598     1,276     (1,871 )   615  

Less: noncontrolling interest in subsidiaries net income

            3         3  
                       
 

Net income attributable to Tyco common shareholders

  $ 612   $ 598   $ 1,273   $ (1,871 ) $ 612  
                       

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TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

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


CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

For the Six Months Ended March 27, 2009

($ in millions)

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

Net revenue

  $   $   $ 8,576   $   $ 8,576  

Cost of product sales and services

            5,584         5,584  

Selling, general and administrative expenses

    136     5     2,199         2,340  

Goodwill and intangible asset impairments

            2,705         2,705  

Restructuring, asset impairment and (gain)/loss on divestitures, net

    2         86         88  
                       
 

Operating loss

    (138 )   (5 )   (1,998 )       (2,141 )

Interest income

        1     22         23  

Interest expense

        (146 )   (5 )       (151 )

Other income, net

    5     2     4         11  

Equity in net loss of subsidiaries

    (1,441 )   (2,027 )       3,468      

Intercompany interest and fees

    (709 )   69     640          
                       
 

Loss from continuing operations before income taxes

    (2,283 )   (2,106 )   (1,337 )   3,468     (2,258 )

Income tax benefit (expense)

        34     (58 )       (24 )
                       
 

Loss from continuing operations

    (2,283 )   (2,072 )   (1,395 )   3,468     (2,282 )

Loss from discontinued operations, net of income taxes

    (7 )   (11 )   (7 )   18     (7 )
                       
 

Net loss

    (2,290 )   (2,083 )   (1,402 )   3,486     (2,289 )

Less: noncontrolling interest in subsidiaries net income

            1         1  
                       
 

Net loss attributable to Tyco common shareholders

  $ (2,290 ) $ (2,083 ) $ (1,403 ) $ 3,486   $ (2,290 )
                       

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TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

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


CONDENSED CONSOLIDATING BALANCE SHEET

As of March 26, 2010

($ in millions)

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

Assets

                               

Current Assets:

                               
 

Cash and cash equivalents

  $   $ 5   $ 2,728   $   $ 2,733  
 

Accounts receivable, net

            2,460         2,460  
 

Inventories

            1,464         1,464  
 

Intercompany receivables

    1,079     43     15,102     (16,224 )    
 

Prepaid expenses and other current assets

    81     2     849         932  
 

Deferred income taxes

            408         408  
                       
   

Total current assets

    1,160     50     23,011     (16,224 )   7,997  

Property, plant and equipment, net

            3,501         3,501  

Goodwill

            8,665         8,665  

Intangible assets, net

            2,698         2,698  

Investment in subsidiaries

    44,529     15,953         (60,482 )    

Intercompany loans receivable

        10,286     18,695     (28,981 )    

Other assets

    114     298     2,199         2,611  
                       
   

Total Assets

  $ 45,803   $ 26,587   $ 58,769   $ (105,687 ) $ 25,472  
                       

Liabilities and Equity

                               

Current Liabilities:

                               
 

Loans payable and current maturities of long-term debt

  $   $ 518   $ 18   $   $ 536  
 

Accounts payable

            1,164         1,164  
 

Accrued and other current liabilities

    515     52     1,874         2,441  
 

Deferred revenue

            614         614  
 

Intercompany payables

    10,161     4,951     1,112     (16,224 )    
                       
   

Total current liabilities

    10,676     5,521     4,782     (16,224 )   4,755  

Long-term debt

        3,934     61         3,995  

Intercompany loans payable

    21,654     81     7,246     (28,981 )    

Deferred revenue

            1,110         1,110  

Other liabilities

    566         2,123         2,689  
                       
   

Total Liabilities

    32,896     9,536     15,322     (45,205 )   12,549  
                       

Tyco Shareholders' Equity:

                               
 

Preference shares

            2,500     (2,500 )    
 

Common shares

    2,723                 2,723  
 

Common shares held in treasury

            (165 )       (165 )
 

Other shareholders' equity

    10,184     17,051     41,096     (57,982 )   10,349  
                       
   

Total Tyco Shareholders' Equity

    12,907     17,051     43,431     (60,482 )   12,907  
 

Noncontrolling interest

            16         16  
                       
   

Total Equity

    12,907     17,051     43,447     (60,482 )   12,923  
                       
   

Total Liabilities and Equity

  $ 45,803   $ 26,587   $ 58,769   $ (105,687 ) $ 25,472  
                       

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TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

18.    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     16,071         (59,561 )    

Intercompany loans receivable

        9,765     18,695     (28,460 )    

Other assets

    96     303     2,252         2,651  
                       
   

Total Assets

  $ 44,769   $ 26,168   $ 58,381   $ (103,765 ) $ 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     16,701     40,564     (57,051 )   10,033  
                       
   

Total Tyco Shareholders' Equity

    12,941     16,701     42,850     (59,551 )   12,941  
 

Noncontrolling interest

            13         13  
                       
   

Total Equity

    12,941     16,701     42,863     (59,551 )   12,954  
                       
   

Total Liabilities and Equity

  $ 44,769   $ 26,168   $ 58,381   $ (103,765 ) $ 25,553  
                       

46


Table of Contents


TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

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


CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

For the Six Months Ended March 26, 2010

($ 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

  $ (13 ) $ (330 ) $ 1,354   $   $ 1,011  

Cash Flows From Investing Activities:

                               

Capital expenditures

            (335 )       (335 )

Proceeds from disposal of assets

            19         19  

Acquisition of businesses, net of cash acquired

            (152 )       (152 )

Accounts purchased by ADT

            (266 )       (266 )

Divestiture of businesses, net of cash retained

            28         28  

Net increase in intercompany loans

        (410 )       410      

(Increase) decrease in investment in subsidiaries

    (2 )   457         (455 )    

Other

            11         11  
                       
 

Net cash (used in) provided by investing activities

    (2 )   47     (695 )   (45 )   (695 )

Cash Flows From Financing Activities:

                               

Net borrowings (repayments) of debt

        291     (45 )       246  

Proceeds from exercise of share options

            9         9  

Dividends paid

    (214 )               (214 )

Net intercompany loan borrowings

    204         206     (410 )    

Decrease in equity from parent

            (455 )   455      

Other

    25     (3 )   (1 )       21  
                       
 

Net cash provided by (used in) financing activities

    15     288     (286 )   45     62  

Effect of currency translation on cash

            1         1  
                       

Net increase in cash and cash equivalents

        5     374         379  

Cash and cash equivalents at beginning of period

            2,354         2,354  
                       

Cash and cash equivalents at end of period

  $   $ 5   $ 2,728   $   $ 2,733  
                       

47


Table of Contents


TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

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


CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

For the Six Months Ended March 27, 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 (used in) operating activities

  $ 9   $ (511 ) $ 1,284   $   $ 782  
 

Net cash used in discontinued operating activities

            (13 )       (13 )

Cash Flows From Investing Activities:

                               

Capital expenditures

            (331 )       (331 )

Proceeds from disposal of assets

            4         4  

Acquisition of businesses, net of cash acquired

            (47 )       (47 )

Accounts purchased by ADT

            (231 )       (231 )

Divestiture of businesses, net of cash retained

            8         8  

Net increase in intercompany loans

        (864 )       864      

(Increase) decrease in investment in subsidiaries

    (18 )   1,352         (1,334 )    

Other

            (6 )       (6 )
                       
 

Net cash (used in) provided by investing activities

    (18 )   488     (603 )   (470 )   (603 )
 

Net cash provided by discontinued investing activities

            32         32  

Cash Flows From Financing Activities:

                               

Net borrowings (repayments) of debt

        25     (45 )       (20 )

Proceeds from exercise of share options