10-Q 1 a2204831z10-q.htm 10-Q

Table of Contents

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



FORM 10-Q


ý

 

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

For the Quarterly Period Ended June 24, 2011

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 July 18, 2011 was 464,365,339.


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 nine months ended June 24, 2011 and June 25, 2010

 

1


 

Consolidated Balance Sheets (Unaudited) as of June 24, 2011 and September 24, 2010

 

2


 

Consolidated Statements of Cash Flows (Unaudited) for the nine months ended June 24, 2011 and June 25, 2010

 

3


 

Consolidated Statements of Shareholders' Equity (Unaudited) for the nine months ended June 24, 2011 and June 25, 2010

 

4


 

Notes to Consolidated Financial Statements (Unaudited)

 

5

Item 2.

 

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

 

54

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

77

Item 4.

 

Controls and Procedures

 

77

Part II.

 

Other Information

 

 

Item 1.

 

Legal Proceedings

 

78

Item 1A.

 

Risk Factors

 

82

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

82

Item 3.

 

Defaults Upon Senior Securities

 

82

Item 4.

 

Reserved

 

82

Item 5.

 

Other Information

 

82

Item 6.

 

Exhibits

 

83

Signatures

 

84

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
Nine Months Ended
 
 
  June 24,
2011
  June 25,
2010
  June 24,
2011
  June 25,
2010
 

Revenue from product sales

  $ 2,336   $ 2,532   $ 6,962   $ 7,366  

Service revenue

    1,957     1,742     5,702     5,157  
                   
 

Net revenue

    4,293     4,274     12,664     12,523  

Cost of product sales

    1,629     1,781     4,871     5,218  

Cost of services

    1,011     912     2,963     2,694  

Selling, general and administrative expenses

    1,143     1,163     3,365     3,380  

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

    35     43     (153 )   26  
                   
 

Operating income

    475     375     1,618     1,205  

Interest income

    8     7     26     24  

Interest expense

    (59 )   (71 )   (184 )   (221 )

Other expense, net

    (3 )   (85 )   (9 )   (73 )
                   
 

Income from continuing operations before income taxes

    421     226     1,451     935  

Income tax (expense) benefit

    (58 )   26     (278 )   (78 )
                   
 

Income from continuing operations

    363     252     1,173     857  

(Loss) income from discontinued operations, net of income taxes

    (5 )   4     160     14  
                   
 

Net income

    358     256     1,333     871  

Less: noncontrolling interest in subsidiaries net (loss) income

    (1 )   2         5  
                   
 

Net income attributable to Tyco common shareholders

  $ 359   $ 254   $ 1,333   $ 866  
                   

Amounts attributable to Tyco common shareholders:

                         
 

Income from continuing operations

  $ 364   $ 250   $ 1,173   $ 852  
 

(Loss) income from discontinued operations

    (5 )   4     160     14  
                   
 

Net income attributable to Tyco common shareholders

  $ 359   $ 254   $ 1,333   $ 866  
                   

Basic earnings per share attributable to Tyco common shareholders:

                         
 

Income from continuing operations

  $ 0.78   $ 0.51   $ 2.46   $ 1.77  
 

(Loss) income from discontinued operations

    (0.01 )   0.01     0.34     0.03  
                   
 

Net income attributable to Tyco common shareholders

  $ 0.77   $ 0.52   $ 2.80   $ 1.80  
                   

Diluted earnings per share attributable to Tyco common shareholders:

                         
 

Income from continuing operations

  $ 0.76   $ 0.50   $ 2.44   $ 1.76  
 

Income from discontinued operations

        0.01     0.33     0.03  
                   
 

Net income attributable to Tyco common shareholders

  $ 0.76   $ 0.51   $ 2.77   $ 1.79  
                   

Weighted average number of shares outstanding:

                         
 

Basic

    468     492     476     481  
 

Diluted

    475     496     481     484  

See Notes to Consolidated Financial Statements.

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TYCO INTERNATIONAL LTD.

CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(in millions, except per share data)

 
  June 24,
2011
  September 24,
2010
 

Assets

             

Current Assets:

             
 

Cash and cash equivalents

  $ 1,629   $ 1,775  
 

Accounts receivable, less allowance for doubtful accounts of $125 and $161, respectively

    2,470     2,493  
 

Inventories

    1,406     1,443  
 

Prepaid expenses and other current assets

    946     936  
 

Deferred income taxes

    367     382  
 

Assets held for sale

        324  
           
   

Total current assets

    6,818     7,353  

Property, plant and equipment, net

    4,007     4,156  

Goodwill

    9,895     9,577  

Intangible assets, net

    3,558     3,446  

Other assets

    2,699     2,596  
           
   

Total Assets

  $ 26,977   $ 27,128  
           

Liabilities and Equity

             

Current Liabilities:

             
 

Loans payable and current maturities of long-term debt

  $ 42   $ 536  
 

Accounts payable

    1,230     1,340  
 

Accrued and other current liabilities

    2,708     2,671  
 

Deferred revenue

    638     618  
 

Liabilities held for sale

        103  
           
   

Total current liabilities

    4,618     5,268  

Long-term debt

    4,145     3,652  

Deferred revenue

    1,156     1,106  

Other liabilities

    2,876     3,001  
           
   

Total Liabilities

    12,795     13,027  
           

Commitments and Contingencies (see Note 10)

             

Tyco Shareholders' Equity:

             
 

Common shares, CHF 6.70 par value, 825,222,070 shares authorized, 486,414,669 shares issued as of June 24, 2011; CHF 6.70 par value, 814,801,671 shares authorized, 514,502,770 shares issued as of September 24, 2010

    2,792     2,948  
 

Common shares held in treasury, 22,640,966 and 26,097,158 shares, as of June 24, 2011 and September 24, 2010, respectively

    (988 )   (976 )
 

Contributed surplus

    10,721     12,121  
 

Accumulated earnings

    1,642     312  
 

Accumulated other comprehensive income (loss)

    10     (321 )
           
   

Total Tyco Shareholders' Equity

    14,177     14,084  

Noncontrolling interest

    5     17  
           
   

Total Equity

    14,182     14,101  
           
   

Total Liabilities and Equity

  $ 26,977   $ 27,128  
           

See Notes to Consolidated Financial Statements.

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TYCO INTERNATIONAL LTD.

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(in millions)

 
  For the Nine Months Ended  
 
  June 24,
2011
  June 25,
2010
 

Cash Flows From Operating Activities:

             

Net income attributable to Tyco common shareholders

  $ 1,333   $ 866  
 

Noncontrolling interest in subsidiaries net income

        5  
 

Income from discontinued operations, net of income taxes

    (160 )   (14 )
           

Income from continuing operations

    1,173     857  

Adjustments to reconcile net cash provided by operating activities:

             
 

Depreciation and amortization

    976     869  
 

Non-cash compensation expense

    86     92  
 

Deferred income taxes

    119     (127 )
 

Provision for losses on accounts receivable and inventory

    61     93  
 

Gain on divestitures

    (227 )   (43 )
 

Other non-cash items

    54     101  
 

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

             
   

Accounts receivable, net

    (183 )    
   

Inventories

    (195 )   (127 )
   

Prepaid expenses and other current assets

    (18 )   12  
   

Accounts payable

    (53 )   33  
   

Accrued and other liabilities

    (172 )   (6 )
   

Other

        (87 )
           
     

Net cash provided by operating activities

    1,621     1,667  
           
     

Net cash (used in) provided by discontinued operating activities

    (9 )   12  
           

Cash Flows From Investing Activities:

             

Capital expenditures

    (548 )   (512 )

Proceeds from disposal of assets

    7     26  

Acquisition of businesses, net of cash acquired

    (228 )   (600 )

Accounts purchased by ADT

    (451 )   (400 )

Divestiture of businesses, net of cash divested

    711     26  

Other

    (6 )   16  
           
     

Net cash used in investing activities

    (515 )   (1,444 )
           
     

Net cash provided by (used in) discontinued investing activities

    259     (7 )
           

Cash Flows From Financing Activities:

             

Proceeds from issuance of short-term debt

    161     26  

Repayment of short-term debt

    (653 )   (268 )

Proceeds from issuance of long-term debt

    497     1,001  

Repayment of long-term debt

    (3 )   (962 )

Proceeds from exercise of share options

    112     33  

Dividends paid

    (342 )   (311 )

Repurchase of common shares by treasury

    (1,300 )   (276 )

Transfer from discontinued operations

    250     5  

Other

    9     11  
           
     

Net cash used in financing activities

    (1,269 )   (741 )
           
     

Net cash used in discontinued financing activities

    (250 )   (5 )
           

Effect of currency translation on cash

    27     (13 )
           

Net decrease in cash and cash equivalents

    (136 )   (531 )

Decrease in cash and cash equivalents from deconsolidation of variable interest entity

    (10 )    

Cash and cash equivalents at beginning of period

    1,775     2,354  
           

Cash and cash equivalents at end of period

  $ 1,629   $ 1,823  
           

See Notes to Consolidated Financial Statements.

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TYCO INTERNATIONAL LTD.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (UNAUDITED)

For the Nine Months Ended June 24, 2011 and June 25, 2010

(in millions)

 
  Number of
Common
Shares
  Common
Shares at
Par Value
  Treasury
Shares
  Contributed
Surplus
  Accumulated
(Deficit)
Earnings
  Accumulated
Other
Comprehensive
(Loss)
Income
  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

                            866           866     5     871  
 

Currency translation, net of income tax benefit of $1 million

                                  (565 )   (565 )         (565 )
 

Unrealized loss on marketable securities and derivative instruments, net of income taxes

                                  (2 )   (2 )         (2 )
 

Retirement plans, net of income taxes of $39 million

                                  69     69           69  
                                                   
 

Total comprehensive income

                                        368     5     373  

Dividends declared (see Note 12)

          (423 )                           (423 )         (423 )

Issuance of shares in connection with the acquisition of Brinks Home Security Inc. 

    35     241     2     1,119                 1,362           1,362  
   

Replacement of share based equity awards issued in connection with the acquisition of Brinks Home Security Inc. 

                      27                 27           27  

Shares issued from treasury for vesting of share based equity awards

    2           95     (62 )               33           33  

Repurchase of common shares by treasury

    (7 )         (276 )                     (276 )         (276 )

Compensation expense

                      93                 93           93  

Other

                                              (2 )   (2 )
                                       

Balance as of June 25, 2010

    504   $ 2,940   $ (393 ) $ 12,117   $ 46   $ (585 ) $ 14,125   $ 16   $ 14,141  
                                       

 

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

Balance as of September 24, 2010

    488   $ 2,948   $ (976 ) $ 12,121   $ 312   $ (321 ) $ 14,084   $ 17   $ 14,101  

Comprehensive income:

                                                       
 

Net income

                            1,333           1,333           1,333  
 

Deconsolidation of variable interest entity due to adoption of an accounting standard (See Note 1)

                                              (11 )   (11 )
 

Currency translation, net of income tax expense of $1 million

                                  289     289           289  
 

Unrealized loss on marketable securities

                                  (1 )   (1 )         (1 )
 

Retirement plans, net of income taxes of $5 million

                                  43     43           43  
                                                   
 

Total comprehensive income

                                        1,664     (11 )   1,653  

Cancellation of treasury shares

          (160 )   1,075     (915 )                          

Dividends declared (See Note 12)

          4           (465 )               (461 )         (461 )

Shares issued from treasury for vesting of share based equity awards

    6           218     (106 )               112           112  

Repurchase of common shares by treasury

    (30 )         (1,300 )                     (1,300 )         (1,300 )

Compensation expense

                      86                 86           86  

Other

                (5 )         (3 )         (8 )   (1 )   (9 )
                                       

Balance as of June 24, 2011

    464   $ 2,792   $ (988 ) $ 10,721   $ 1,642   $ 10   $ 14,177   $ 5   $ 14,182  
                                       

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 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 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 results reported in these Consolidated Financial Statements should not be taken as indicative of results that may be expected for the entire year. 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 24, 2010 (the "2010 Form 10-K").

        During the first quarter of fiscal 2011, the Company realigned its Safety Products segment between its ADT Worldwide and Fire Protection Services segments to create two new segments: Tyco Security Solutions and Tyco Fire Protection. Tyco Security Solutions consists of the former ADT Worldwide segment as well as the portion of the former Safety Products segment that manufactures security products including intrusion, security, access control and video management systems. Tyco Fire Protection consists of the former Fire Protection Services segment as well as a number of businesses from the former Safety Products segment including the fire suppression and life safety products businesses. In addition, various businesses were realigned between Tyco Security Solutions and Tyco Fire Protection. See Note 15.

        As a result of this realignment, as well as the sale of a majority interest in the Electrical and Metal Products business (See Note 2), the Company has three core businesses: Tyco Security Solutions, Tyco Fire Protection and Tyco Flow Control.

        References to 2011 and 2010 are to Tyco's fiscal quarters ending June 24, 2011 and June 25, 2010, respectively, unless otherwise indicated.

        Reclassifications—As a result of the segment realignment, prior period segment amounts have been recast to conform to the current period presentation. See Note 15.

        Recently Adopted Accounting Pronouncements—In September 2009, the Financial Accounting Standards Board ("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 ("VSOE") if available, third-party evidence ("TPE") if VSOE is not available, or estimated selling price if neither VSOE nor TPE is available. The guidance requires arrangements under which multiple revenue generating activities to be performed be allocated at inception. The residual method under the existing accounting guidance has been eliminated. The guidance became effective for Tyco for revenue arrangements entered into or materially modified beginning in the first quarter of fiscal 2011. The adoption of the guidance did not have a material impact on the Company's 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 ("VIE"), to address the elimination of the concept of a

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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)


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 VIE with an approach focused on identifying which enterprise has the power to direct the significant activities of a VIE, and the obligation to absorb losses or the right to receive benefits that may be significant to the VIE. The guidance became effective for Tyco in the first quarter of fiscal 2011. The Company's population of VIE's is primarily composed of joint ventures that are not material to the Company's consolidated operations and are not material to the Company's financial position, results of operations or cash flows. The adoption of this guidance resulted in the deconsolidation of a joint venture in the Tyco Fire Protection segment, but it did not have a material impact on the Company's financial position, results of operations or cash flows.

        Recently Issued Accounting Pronouncements—In June 2011, the FASB issued authoritative guidance for the presentation of comprehensive income. The guidance amended the reporting of Other Comprehensive Income ("OCI") by eliminating the option to present OCI as part of the Statement of Changes in Shareholder's Equity. The amendment will not impact the accounting for OCI, but only its presentation in the Company's consolidated financial statements. The guidance requires that all nonowner changes in Tyco's shareholders' equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements which include total net income and its components, consecutively followed by total OCI and its components to arrive at total comprehensive income. The guidance must be applied retrospectively and is effective for Tyco in the first quarter of fiscal 2013, with early adoption permitted. The Company is currently assessing the timing of its adoption of the guidance.

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.

        On November 9, 2010, the Company announced that it entered into an investment agreement (the "Agreement") to sell a majority interest in its Electrical and Metal Products business to an affiliate of the private equity firm Clayton, Dubilier & Rice, LLC (the "Investor"). The Company formed a newly incorporated holding company, Atkore International Group Inc. ("Atkore"), to hold the Company's Electrical and Metal Products business. On December 22, 2010, the transaction closed and the Investor acquired shares of a newly-created class of cumulative convertible preferred stock of Atkore (the "Preferred Stock"). The Preferred Stock initially represented 51% of the outstanding capital stock (on an as-converted basis) of Atkore. In connection with the closing, the Company received cash proceeds of approximately $713 million and recorded a gain of $259 million (including a $49 million gain recognized in connection with determining the fair value of the Company's retained ownership interest discussed below) during the first quarter of 2011. During the quarter and nine months ended June 24, 2011, the Company recorded net working capital adjustments of $2 million and $11 million, respectively, that reduced the gain on disposal. The gain on disposal is recorded within restructuring, asset impairments and divestiture charges (gain), net in the Company's Consolidated Statements of Operations.

        In connection with the sale, the Company was required to determine the fair value of its retained ownership interest in Atkore. The fair value of the retained ownership interest was determined by implying a total equity value of Atkore using the price paid by the Investor for the Preferred Stock less

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TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

2.    Divestitures (Continued)


the expected present value of dividends to be paid on the Preferred Stock (the "Implied Equity Value"). The discount rate used to determine the present value of the expected dividends was calculated by taking the average of the stated return on the Preferred Stock pursuant to the Agreement and Atkore's estimated cost of equity. The Implied Equity Value was then allocated to the Company's retained ownership interest. To arrive at the fair value of the Company's retained ownership interest the Company applied a discount factor to the Company's allocated Implied Equity Value due to the lack of marketability of the common stock of Atkore, which is now privately held. The fair value of the Company's retained ownership interest was determined to be $137 million, resulting in the Company recognizing a $49 million gain upon deconsolidation during the first quarter of fiscal 2011. Tyco's retained ownership interest in Atkore is accounted for under the equity method of accounting and is recorded in other assets in the Company's Consolidated Balance Sheet as of June 24, 2011. The Company's proportionate share of Atkore's net income (loss) is recorded within Other expense, net in the Company's Consolidated Statements of Operations as the amounts were not material. The company recorded equity income of $9 million and $2 million for the quarter and nine months ended June 24, 2011, respectively.

        During the fourth quarter of 2009, the Company approved a plan to sell its French security business, which was part of the Company's Tyco Security Solutions segment. The results of operations were presented in continuing operations as the criteria for discontinued operations had not been met. During the second quarter of 2010, the Company completed the sale and recorded a $53 million pre-tax gain within restructuring, asset impairments and divestiture charges (gain), net in the Company's Consolidated Statement of Operations.

Discontinued Operations

        On September 30, 2010, the Company sold its European water business, which was part of the Company's Flow Control segment. The sale was completed for approximately $264 million in cash proceeds, net of $7 million of cash divested on sale, and a pre-tax gain of $168 million was recorded, which was largely exempt from tax. The gain was recorded in (loss) income from discontinued operations, net of income taxes in the Company's Consolidated Statement of Operations.

        Net revenue, pre-tax income (loss) from discontinued operations, pre-tax (loss) income on sale of discontinued operations, income tax expense and (loss) income from discontinued operations, net of income taxes are as follows ($ millions):

 
  For the Quarters Ended   For the Nine Months Ended  
 
  June 24,
2011
  June 25,
2010
  June 24,
2011
  June 25, 2010  

Net revenue

  $   $ 82   $ 3   $ 248  
                   

Pre-tax income (loss) from discontinued operations

  $   $ 11   $ (5 ) $ 22  

Pre-tax (loss) income on sale of discontinued operations

        (5 )   168     (5 )

Income tax expense

    (5 )   (2 )   (3 )   (3 )
                   

(Loss) income from discontinued operations, net of income taxes

  $ (5 ) $ 4   $ 160   $ 14  
                   

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TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

2.    Divestitures (Continued)

        There were no material pending divestitures as of June 24, 2011. Balance sheet information for material pending divestitures as of September 24, 2010 was as follows ($ in millions):

 
  September 24, 2010  

Accounts receivables, net

  $ 70  

Inventories

    71  

Prepaid expenses and other current assets

    13  

Property, plant and equipment, net

    59  

Goodwill and intangible assets, net

    105  

Other assets

    6  
       
 

Total assets

  $ 324  
       

Accounts payable

  $ 43  

Accrued and other current liabilities

    36  

Other liabilities

    24  
       
 

Total liabilities

  $ 103  
       

Divestiture Charges (Gain), Net

        During the quarter and nine months ended June 24, 2011, the Company recorded a net loss of $6 million and a net gain of $227 million, respectively, in restructuring, asset impairments and divestiture charges (gain), 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 nine months ended June 24, 2011 includes a gain of $248 million, net of working capital adjustments, recognized in conjunction with the sale of a majority interest in the Company's Electrical and Metal Products business, as discussed above.

        During the quarter and nine months ended June 25, 2010, the Company recorded a net loss of $1 million and a net gain of $43 million, respectively, in restructuring, asset impairments and divestiture charges (gain), 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 nine months ended June 25, 2010 includes the $53 million gain recognized upon the sale of the Company's French security business, as discussed above.

3.    Restructuring and Asset Impairment Charges, Net

        The Company continues to identify and pursue opportunities for cost savings through restructuring activities and workforce reductions to improve operating efficiencies across the Company's businesses during fiscal 2011. The Company expects to incur restructuring and restructuring related charges of approximately $150 million in fiscal 2011.

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TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

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

        The Company recorded restructuring and asset impairment charges by program and Consolidated Statement of Operations classification as follows ($ in millions):

 
  For the Quarter
Ended June 24, 2011
  For the Quarter
Ended June 25, 2010
  For the Nine Months
Ended June 24, 2011
  For the Nine Months
Ended June 25, 2010
 

2011 program

  $ 25   $   $ 70   $  

2009 program

    4     40         69  

2007 and pre-2006 programs

    1     1     4     1  
                   

Total restructuring and asset impairment charges, net

  $ 30   $ 41   $ 74   $ 70  
                   

Charges reflected in cost of sales

    1     (1 )   1      

Charges reflected in selling, general and administrative ("SG&A")

            (1 )   1  

Charges reflected in restructuring, asset impairments and divestiture charges (gain), net

  $ 29   $ 42   $ 74   $ 69  

2011 Program

        Restructuring and asset impairment charges, net, during the quarter and nine months ended June 24, 2011 are as follows ($ in millions):

 
  For the Quarter Ended June 24, 2011  
 
  Employee
Severance and
Benefits
  Facility Exit
and Other
Charges
  Charges
Reflected in
Cost of Sales
  Total  

Tyco Security Solutions

  $ 15   $ 2   $   $ 17  

Tyco Fire Protection

    2         1     3  

Tyco Flow Control

    2             2  

Corporate and Other

        3         3  
                   

Total

  $ 19   $ 5   $ 1   $ 25  
                   

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TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

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

 

 
  For the Nine Months Ended June 24, 2011  
 
  Employee
Severance and
Benefits
  Facility Exit
and Other
Charges
  Charges
Reflected in
Cost of Sales
  Charges
Reflected in
SG&A
  Total  

Tyco Security Solutions

  $ 18   $ 5   $   $   $ 23  

Tyco Fire Protection

    29         1         30  

Tyco Flow Control

    6     2         (1 )   7  

Corporate and Other

    6     4             10  
                       

Total

  $ 59   $ 11   $ 1   $ (1 ) $ 70  
                       

        The rollforward of the reserves from September 24, 2010 to June 24, 2011 is as follows ($ in millions):

Balance as of September 24, 2010

  $  

Charges

    74  

Reversals

    (4 )

Utilization

    (19 )

Currency translation

    4  
       

Balance as of June 24, 2011

  $ 55  
       

        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.

2009 Program

        During fiscal 2010 and 2009 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"). As of September 24, 2010, the Company had substantially completed the 2009 Program.

        Restructuring and asset impairment charges, net, during the quarter and nine months ended June 24, 2011 and June 25, 2010 related to the 2009 Program are as follows ($ in millions):

 
  For the Quarter Ended June 24, 2011  
 
  Employee
Severance and
Benefits
  Total  

Tyco Security Solutions

  $ 4   $ 4  
           

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TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

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

 

 
  For the Quarter Ended June 25, 2010  
 
  Employee
Severance and
Benefits
  Facility Exit
and Other
Charges
  Charges Reflected in Cost of Sales   Total  

Tyco Security Solutions

  $ 23   $ 3   $   $ 26  

Tyco Fire Protection

    5     1         6  

Tyco Flow Control

    3     3         6  

Electrical and Metal Products

        2     (1 )   1  

Corporate and Other

    1             1  
                   

Total

  $ 32   $ 9   $ (1 ) $ 40  
                   

 

 
  For the Nine Months Ended June 24, 2011  
 
  Employee
Severance and
Benefits
  Facility Exit
and Other
Charges
  Total  

Tyco Security Solutions

  $ (10 ) $ 6   $ (4 )

Tyco Fire Protection

    1     3     4  
               

Total

  $ (9 ) $ 9   $  
               

 

 
  For the Nine Months Ended June 25, 2010  
 
  Employee
Severance and
Benefits
  Facility Exit
and Other
Charges
  Charges
Reflected in Cost
of Sales
  Charges
Reflected in
SG&A
  Total  

Tyco Security Solutions

  $ 29   $ 7   $   $   $ 36  

Tyco Fire Protection

    13     (2 )       1     12  

Tyco Flow Control

    13     4     1         18  

Electrical and Metal Products

        3     (1 )       2  

Corporate and Other

    1                 1  
                       

Total

  $ 56   $ 12   $   $ 1   $ 69  
                       

        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  

Tyco Security Solutions

  $ 120   $ 38   $ 10   $ 5   $ 173  

Tyco Fire Protection

    93     7     7     2     109  

Tyco Flow Control

    31     11     4     (1 )   45  

Electrical and Metal Products

    12     5     14         31  

Corporate and Other

    3     7         1     11  
                       

Total

  $ 259   $ 68   $ 35   $ 7   $ 369  
                       

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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 from September 24, 2010 to June 24, 2011 is as follows ($ in millions):

 

Balance as of September 24, 2010

  $ 135  
 

Charges

    24  
 

Reversals

    (24 )
 

Utilization

    (59 )
 

Divestitures

    (13 )
 

Currency translation

    3  
       
 

Balance as of June 24, 2011

  $ 66  
       

        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 and pre-2006 Programs

        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"). The Company maintained a restructuring reserve related to the 2007 Program of $21 million and $26 million as of June 24, 2011 and September 24, 2010, respectively. The Company incurred $1 million and $4 million of charges and utilized $3 million and $8 million of the restructuring reserve balance during the quarter and nine months ended June 24, 2011, respectively. In addition, the Company continues to maintain restructuring reserves related to certain programs initiated prior to 2006. The total amount of these reserves was $14 million as of both June 24, 2011 and September 24, 2010. The aggregate remaining reserves related to the 2007 and pre-2006 programs primarily relate to facility exit costs for long-term non-cancelable lease obligations with expiration dates that range from 2011 to 2022 primarily within the Company's Tyco Security Solutions segment. The Company incurred $1 million of charges for both the quarter and nine months ended June 25, 2010.

Total Restructuring Reserves

        As of June 24, 2011 and September 24, 2010, restructuring reserves related to all programs were included in the Company's Consolidated Balance Sheets as follows ($ in millions):

 
  June 24,
2011
  September 24,
2010
 

Accrued and other current liabilities

  $ 129   $ 124  

Other liabilities

    27     51  
           

Total

  $ 156   $ 175  
           

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TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

4. Acquisitions

2011 Acquisitions

        During the quarter and nine months ended June 24, 2011, cash paid for acquisitions included in continuing operations totaled $219 million and $228 million, respectively, which primarily related to the acquisition of Oceania Capital Partners Limited's Signature Security Group. Signature Security Group is an electronic security company operating in Australia and New Zealand primarily in small business and residential markets. Cash paid for Signature Security Group totaled approximately $184 million, net of cash acquired of $2 million by the Company's Tyco Security Solutions segment.

        On March 21, 2011, the Company signed a definitive agreement to acquire a 75% equity stake in privately-held KEF Holdings Ltd. ("KEF"), a vertically integrated valve manufacturer in the Middle East, for approximately $300 million. Following the close of the transaction, the Company intends to combine KEF with the Company's Tyco Flow Control Segment. See Note 20.

2011 ADT Account Acquisitions

        During the quarter and nine months ended June 24, 2011, the Company paid $172 million and $451 million of cash, respectively, to acquire approximately 159,000 and 419,000 customer contracts for electronic security services in its Tyco Security Solutions segment.

2011 Acquisition Related Costs

        Acquisition costs are expensed as incurred. During the quarter and nine months ended June 24, 2011, the Company incurred acquisition costs of $1 million and $4 million, respectively, primarily in connection with its acquisitions of Signature Security Group and KEF. Such costs are recorded in selling, general and administrative expenses in the Company's Consolidated Statements of Operations.

        During the quarter and nine months ended June 24, 2011, the Company incurred integration costs of $8 million and $22 million, respectively, primarily in connection with its acquisition of Brink's Home Security Holdings, Inc ("BHS" or "Broadview Security"). Such costs are recorded within selling, general and administrative expenses in the Company's Consolidated Statements of Operations.

2010 Acquisitions

        During the quarter and nine months ended June 25, 2010, cash paid for acquisitions included in continuing operations totaled $448 million and $600 million, respectively, net of cash acquired of $136 million and $137 million, respectively, which primarily related to the acquisition of Broadview Security and Hiter Industria e Comercio de Controle Termo-Hidraulico Ltda ("Hiter"). Net cash paid for Broadview Security totaled $448 million by the Company's Tyco Security Solutions segment during the quarter ended June 25, 2010. During the nine months ended June 25, 2010, the Company's Flow Control segment acquired two Brazilian valve companies, including 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.

2010 ADT Account Acquisitions

        During the quarter and nine months ended June 25, 2010, the Company paid $134 million and $400 million of cash, respectively, to acquire approximately 122,000 and 356,000 customer contracts for electronic security services in the Tyco Security Solutions segment.

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TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

4. Acquisitions (Continued)

2010 Acquisition Related Costs

        Acquisition costs are expensed as incurred. The Company has incurred approximately $14 million and $17 million of costs directly related to the Broadview Security acquisition during the quarter and nine months ended June 25, 2010. In addition, the Company recorded $10 million of integration costs during the quarter and $11 million during the nine months ended June 25, 2010. Both acquisition and integration costs have been recorded within selling, general and administrative expenses in the Company's Consolidated Statement of Operations for the quarter and nine months ended June 25, 2010. The Company's Tyco Security Solutions segment recorded $24 million and $25 million of acquisition and integration costs for the quarter and nine months ended June 25, 2010, respectively. The Company's Corporate and Other segment recorded nil and $3 million of acquisition costs for the quarter and nine months ended June 25, 2010, respectively. In addition, the Company's Tyco Security Solutions segment recorded $13 million of restructuring expenses, in conjunction with the acquisition of Broadview Security, which have been recorded within restructuring, asset impairments and divestiture charges, net in the Company's Consolidated Statement of Operations for the quarter and nine months ended June 25, 2010.

    Acquisition of Broadview Security

        On May 14, 2010, the Company's Tyco Security Solutions segment acquired all of the outstanding equity of Broadview Security, a publicly traded company that was formerly owned by The Brink's Company, in a cash-and-stock transaction valued at approximately $2.0 billion. Under the terms of the transaction, each outstanding share of BHS common stock was converted into the right to receive: (1) $13.15 in cash and 0.7562 Tyco common shares, for those shareholders who made an all-cash election, (2) 1.0951 Tyco common shares, for those shareholders who made an all stock election or (3) $12.75 in cash and 0.7666 Tyco common shares, for those shareholders who made a mixed cash/stock election or who failed to make an election.

        Prior to its acquisition, Broadview Security's core business was to provide security alarm monitoring services for residential and commercial properties in North America. Broadview Security had a large residential recurring customer base and was also a leader in technologies and services. The acquisition of Broadview Security has expanded the Company's presence in the North American residential security business as well as enhanced the Company's service offerings to its customers.

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TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

4. Acquisitions (Continued)

Fair Value Calculation of Consideration Transferred

        The calculation of the consideration transferred to acquire BHS is as follows. Certain amounts below cannot be recalculated as the exact BHS common share amounts have not been presented. ($ and common share data in millions, except per share data):

Cash consideration

       

All cash consideration

       

Number of shares of BHS common shares outstanding as of May 14, 2010 electing all cash

    37  

Cash consideration per common share outstanding

  $ 13.15  
       
 

Total cash paid to BHS shareholders making all cash election

  $ 490  

Mixed cash/stock consideration

       

Number of shares of BHS common shares outstanding as of May 14, 2010 electing mixed consideration or not making an election

    7  

Cash consideration per common share outstanding

  $ 12.75  
       
 

Total cash paid to BHS shareholders making a mixed election or not making an election

  $ 95  
       
   

Total cash consideration

  $ 585  
       

Stock consideration

       

All cash consideration

       

Number of shares of BHS common shares outstanding as of May 14, 2010 electing all cash

    37  

Exchange ratio

    0.7562  
       
 

Tyco shares issued to BHS shareholders making an all cash election

    28  

All stock consideration

       

Number of shares of BHS common shares outstanding as of May 14, 2010 electing all stock

    1  

Exchange ratio

    1.0951  
       
 

Tyco shares issued to BHS shareholders making an all stock election

    1  

Mixed cash/stock consideration

       

Number of shares of BHS common shares outstanding as of May 14, 2010 electing mixed consideration or not making an election

    7  

Exchange ratio

    0.7666  
       
 

Tyco shares issued to BHS shareholders making a mixed election or not making an election

    6  
       

Total Tyco common shares issued

    35  
       

Tyco's average common share price on May 14, 2010

  $ 38.73  
       
   

Total stock consideration

  $ 1,362  
       

Fair value of BHS stock option, restricted stock unit and deferred stock unit replacement awards(1)

  $ 27  
       

Total fair value of consideration transferred

  $ 1,974  
       

(1)
Represents the fair value of BHS stock option, restricted stock unit and deferred stock unit replacement awards attributable to pre-combination service issued to holders of these awards in the acquisition. The fair value was determined using the Black-Scholes model for stock option awards and Tyco's closing stock price for the restricted and deferred stock unit awards. The fair

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TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

4. Acquisitions (Continued)

    value of outstanding BHS stock-based compensation awards which, immediately vested at the effective time of the acquisition, was attributed to pre-combination service and was included in the consideration transferred. In addition, there were certain BHS stock-based compensation awards which did not immediately vest upon completion of the acquisition. For those awards, the fair value of the awards attributed to pre-combination service was included as part of the consideration transferred and the fair value attributed to post-combination service is being recognized as compensation expense over the requisite service period in the post-combination financial statements of Tyco.

Fair Value Allocation of Consideration Transferred to Assets Acquired and Liabilities Assumed

        The consideration transferred for BHS has been allocated to identifiable assets acquired and liabilities assumed as of the acquisition date. The following amounts represent the fair value of the identifiable assets acquired and liabilities assumed ($ in millions):

Net current assets(1)

  $ 78  
 

Subscriber systems

    624  
 

Other property, plant and equipment

    49  
       
   

Total property, plant and equipment

    673  
       
 

Contracts and related customer relationships (10-year weighted average useful life)

    738  
 

Other intangible assets (4-year weighted average useful life)

    12  
       
   

Total intangible assets

    750  
       

Net non-current liabilities(2)

    (459 )
       
 

Net assets acquired

    1,042  

Goodwill(3)

    932  
       

Purchase price

  $ 1,974  
       

(1)
As of the acquisition date, the fair value of accounts receivable approximated book value. Included in net current assets is $32 million of accounts receivable. The gross contractual amount receivable was approximately $35 million of which $3 million was not expected to be collected.

(2)
Included in net non-current liabilities is approximately $456 million of deferred tax liabilities which are recorded in other liabilities in the Company's Consolidated Balance Sheet.

(3)
The goodwill recognized is primarily related to expected synergies and other benefits that the Company believes will result from combining the operations of BHS with the operations of Tyco Security Solutions. All of the goodwill has been allocated to the Company's Tyco Security Solutions segment. None of the goodwill is expected to be deductible for tax purposes.

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TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

4. Acquisitions (Continued)

Actual BHS Financial Results

        BHS actual results from the acquisition date, May 14, 2010, which are included in the Consolidated Statement of Operations for the quarter and nine months ended June 25, 2010, are as follows ($ in millions):

 
  For the Quarter and
Nine Months Ended
 
 
  June 25, 2010  

Net Revenue

  $ 54  
       

Loss from continuing operations attributable to Tyco common shareholders

    (26 )
       

Net loss attributable to Tyco common shareholders

    (26 )
       

Supplemental Pro Forma Financial Information (unaudited)

        The supplemental pro forma financial information for the quarter and nine months ended June 25, 2010 is as follows ($ in millions):

 
  For the
Quarter Ended
  For the
Nine Months Ended
 
 
  June 25,
2010
  June 25,
2010
 

Net revenue

  $ 4,342   $ 12,877  
           

Income from continuing operations attributable to Tyco common shareholders

    244     870  
           

Net income attributable to Tyco common shareholders

    248     884  
           

Income from continuing operations per share:

             

Basic earnings per share attributable to Tyco common shareholders

  $ 0.46   $ 1.69  

Diluted earnings per share attributable to Tyco common shareholders

  $ 0.46   $ 1.68  

        The supplemental pro forma financial information is based on the historical financial information for Tyco and BHS. The supplemental pro forma financial information for the period ended June 25, 2010 utilized BHS' historical financial information for its fiscal fourth quarter ended December 31, 2009 and the pre-acquisition period from January 1, 2010 through the acquisition date. The supplemental pro forma financial information reflect primarily the following pro forma pre-tax adjustments:

    Elimination of BHS historical intangible asset amortization and property, plant and equipment depreciation expense;

    Elimination of BHS historical deferred acquisition costs amortization;

    Elimination of BHS historical deferred revenue amortization;

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TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

4. Acquisitions (Continued)

    Additional amortization and depreciation expense related to the fair value of identifiable intangible assets and property, plant and equipment acquired;

    Reduction of interest income on cash used to fund the acquisition and Tyco dividends assumed to be paid to BHS shareholders; and

    All of the above pro forma adjustments were tax effected using a statutory tax rate of 39%

        The supplemental pro forma financial information for the quarter and nine months ended June 25, 2010 reflect the following non-recurring adjustments:

    Direct acquisition costs primarily relating to advisory and legal fees and integration costs; and

    Restructuring charges primarily related to employee severance and one-time benefit arrangements

        The supplemental pro forma financial information gives effect to the acquisition, but should not be considered indicative of the results that would have occurred in the periods presented above, nor are they indicative of future results. In addition, the supplemental pro forma financial information does not reflect the potential realization of cost savings relating to the integration of the two companies.

5. Income Taxes

        The Company did not have a significant change to its unrecognized tax benefits during the quarter ended June 24, 2011.

        Many of Tyco's uncertain tax positions 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

    2004-2010  

Canada

    2001-2010  

Germany

    1998-2010  

Italy

    2004-2010  

South Korea

    2006-2010  

Switzerland

    2000-2010  

United Kingdom

    2000-2010  

United States

    1997-2010  

        Based on the current status of its income tax audits, the Company believes that it is reasonably possible that between nil and $65 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. As of June 24, 2011, the Company had recorded deferred tax assets of $1.4 billion, which is comprised of $2.9 billion gross deferred tax assets net of $1.5 billion valuation allowances.

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TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

5. Income Taxes (Continued)

Tax Sharing Agreement and Other Income Tax Matters

        In connection with the spin-offs of Covidien and TE Connectivity, formerly Tyco Electronics, from Tyco (the "Separation"), Tyco entered into a Tax Sharing Agreement that generally governs Covidien's, TE Connectivity's 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 TE Connectivity 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, Tyco shares responsibility for certain of its, Covidien's and TE Connectivity's 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 TE Connectivity share 27%, 42% and 31%, respectively, of shared income tax liabilities that arise from adjustments made by tax authorities to Tyco's, Covidien's and TE Connectivity's U.S. and certain non-U.S. income tax returns. The costs and expenses associated with the management of these shared tax liabilities are generally shared equally among the parties. In connection with the execution of the Tax Sharing Agreement, Tyco established a net receivable from Covidien and TE Connectivity representing the amount Tyco expected to receive for pre-Separation uncertain tax positions, including amounts owed to the Internal Revenue Service ("IRS"). As of June 24, 2011 and September 24, 2010, respectively, the aggregate amount of the net receivable was $87 million and $114 million, respectively, of which $68 million and $89 million, respectively, was included in other assets and $19 million and $25 million, respectively, was included in prepaid expenses and other current assets on the Consolidated Balance Sheets. Tyco also established liabilities representing the fair market value of its share of Covidien's and TE Connectivity's estimated obligations, primarily to the IRS, for their pre-Separation taxes covered by the Tax Sharing Agreement. As of June 24, 2011 and September 24, 2010, Tyco had recorded $366 million and $398 million, respectively, in other liabilities, and $188 million and $156 million, respectively, in accrued and other current liabilities. During 2011, Tyco reclassified $32 million from other liabilities to accrued and other current liabilities for a change in the net payment due to Covidien and TE Connectivity related to the resolution of certain IRS audit and pre-Separation tax matters.

        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 quarters ended June 24, 2011 and June 25, 2010, Tyco recorded expense of $12 million and nil, respectively, in accordance with the Tax Sharing Agreement. During the nine months ended June 24, 2011 and June 25, 2010, Tyco recorded expense of $11 million and income of $11 million, respectively, in accordance with Tax Sharing Agreement. Tyco will provide payment to Covidien and TE Connectivity 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. Due to the resolution of certain income tax liabilities by Covidien and TE Connectivity during the quarter ended June 24, 2011, Tyco is expected to make a net cash payment of approximately $188 million to Covidien and TE Connectivity prior to the end of calendar 2011, which, when payment is made, will reduce the guarantor liability under the Tax Sharing Agreement by a corresponding amount. Notwithstanding the resolution of these items, certain significant items regarding pre-Separation shared tax liabilities remain open, and given the nature of these liabilities, the maximum amount of potential future payments under the Tax Sharing Agreement is

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TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

5. Income Taxes (Continued)


not determinable. Such cash payments, when they occur, will reduce the guarantor liability as such payments represent an equivalent reduction of risk. Tyco 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.

        Tyco and its subsidiaries' income tax returns are examined periodically by various tax authorities. In connection with these examinations, tax authorities, including the IRS, have raised issues and proposed tax adjustments, in particular with respect to years preceding the Separation. The issues and proposed adjustments related to such years are generally subject to the sharing provisions of the Tax Sharing Agreement. Tyco is reviewing and contesting certain of the proposed tax adjustments. With respect to adjustments raised by the IRS, although the Company expects to resolve a substantial number of these adjustments, a few significant items are expected to remain open with respect to the audit of the 1997 through 2004 years. As of the date hereof, it is unlikely that Tyco will be able to resolve the open items, which primarily involve the treatment of certain intercompany debt transactions during the period, through the IRS appeals process. As a result, Tyco may be required to litigate these matters. The Company has assessed its obligations under the Tax Sharing Agreement, including with respect to the proposed civil fraud penalties discussed below, to determine that its recorded liability of $554 million is sufficient to cover the indemnifications made by the Company under such agreement. See Note 18. However, the ultimate resolution of these matters is uncertain and could result in a material adverse impact to the Company's financial position, results of operations, cash flows or the effective tax rate in future reporting periods.

        In connection with the aforementioned audits, the IRS proposed civil fraud penalties against a prior subsidiary that was distributed to TE Connectivity 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. This is a pre-Separation tax liability that is covered by the provisions of the Tax Sharing Agreement.

        In addition to dealing with pre-Separation tax liabilities of each of the three entities party thereto, the Tax Sharing Agreement contains sharing provisions to address the contingency that the Separation itself, or internal transactions related to the Separation, may be deemed taxable by U.S. or non U.S. taxing authorities. 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 TE Connectivity, 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 TE Connectivity 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 TE Connectivity 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

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TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

5. Income Taxes (Continued)


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 TE Connectivity's tax liabilities. See Note 18.

        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.

6. Earnings Per Share

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

 
  For the Quarter Ended
June 24, 2011
  For the Quarter Ended
June 25, 2010
 
 
  Income   Shares   Per Share
Amount
  Income   Shares   Per Share
Amount
 

Basic earnings per share attributable to Tyco common shareholders:

                                     
 

Income from continuing operations

  $ 364     468   $ 0.78   $ 250     492   $ 0.51  
 

Share options and restricted share awards

        7               4        
                               

Diluted earnings per share attributable to Tyco common shareholders:

                                     
 

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

  $ 364     475   $ 0.76   $ 250     496   $ 0.50  
                           

 

 
  For the
Nine Months Ended
June 24, 2011
  For the
Nine Months Ended
June 25, 2010
 
 
  Income   Shares   Per Share
Amount
  Income   Shares   Per Share
Amount
 

Basic earnings per share attributable to Tyco common shareholders:

                                     
 

Income from continuing operations

  $ 1,173     476   $ 2.46   $ 852     481   $ 1.77  
 

Share options and restricted share awards

        5               3        
                               

Diluted earnings per share attributable to Tyco common shareholders:

                                     
 

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

  $ 1,173     481   $ 2.44   $ 852     484   $ 1.76  
                           

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TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

6.    Earnings Per Share (Continued)

        The computation of diluted earnings per share for the quarter and nine months ended June 24, 2011 excludes the effect of the potential exercise of share options to purchase approximately 6 million and 10 million shares, respectively, and excludes restricted stock units of approximately nil and 1 million shares, respectively, because the effect would be anti-dilutive.

        The computation of diluted earnings per share for the quarter and nine months ended June 25, 2010 excludes the effect of the potential exercise of share options to purchase approximately 14 million and 16 million shares, respectively, and excludes restricted stock units of approximately 2 million in both periods because the effect would be anti-dilutive.

7.    Goodwill and Intangible Assets

        Annually, in the fiscal fourth quarter, and more frequently if triggering events occur, the Company tests goodwill for impairment by comparing the fair value of each reporting unit with its carrying amount. Fair value for each reporting unit is determined utilizing a discounted cash flow analysis based on the Company's 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 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 quarter of fiscal 2011, the Company realigned its Safety Products segment between its ADT Worldwide and Fire Protection segments to create two new segments: Tyco Security Solutions and Tyco Fire Protection. Also, various businesses were realigned between Tyco Security Solutions and Tyco Fire Protection. As a result of the realignment of business activities, the balances as of September 25, 2009 have been recast. As part of the realignment the Company tested the related goodwill balances for recoverability and determined goodwill continues to be 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):

 
  As of
September 25,
2009
  Acquisitions/
Purchase
Accounting
Adjustments
  Divestitures   Currency
Translation
  As of
September 24,
2010
 

Tyco Security Solutions

                               

Gross Goodwill

  $ 5,921   $ 929   $ (3 ) $ (48 ) $ 6,799  

Impairments

    (1,332 )               (1,332 )
                       

Carrying Amount of Goodwill

    4,589     929     (3 )   (48 )   5,467  
                       

Tyco Fire Protection

                               

Gross Goodwill

    2,638         (10 )   5     2,633  

Impairments

    (429 )               (429 )
                       

Carrying Amount of Goodwill

    2,209         (10 )   5     2,204  
                       

Tyco Flow Control

                               

Gross Goodwill

    1,993     76     (106 )   (57 )   1,906  

Impairments

                     
                       

Carrying Amount of Goodwill

    1,993     76     (106 )   (57 )   1,906  
                       

Electrical and Metal Products

                               

Gross Goodwill

    935                 935  

Impairments

    (935 )               (935 )
                       

Carrying Amount of Goodwill

                     
                       

TOTAL

                               

Gross Goodwill

    11,487     1,005     (119 )   (100 )   12,273  

Impairments

    (2,696 )               (2,696 )
                       

Carrying Amount of Goodwill

  $ 8,791   $ 1,005   $ (119 ) $ (100 ) $ 9,577  
                       

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TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

7.    Goodwill and Intangible Assets (Continued)

 

 
  As of
September 24,
2010
  Acquisitions/
Purchase
Accounting
Adjustments
  Divestitures   Currency
Translation
  As of
June 24,
2011
 

Tyco Security Solutions

                               

Gross Goodwill

  $ 6,799   $ 123   $   $ 72   $ 6,994  

Impairments

    (1,332 )               (1,332 )
                       

Carrying Amount of Goodwill

    5,467     123         72     5,662  
                       

Tyco Fire Protection

                               

Gross Goodwill

    2,633         (3 )   29     2,659  

Impairments

    (429 )               (429 )
                       

Carrying Amount of Goodwill

    2,204         (3 )   29     2,230  
                       

Tyco Flow Control

                               

Gross Goodwill

    1,906     4         93     2,003  

Impairments

                     
                       

Carrying Amount of Goodwill

    1,906     4         93     2,003  
                       

Electrical and Metal Products

                               

Gross Goodwill

    935         (935 )        

Impairments

    (935 )       935          
                       

Carrying Amount of Goodwill

                     
                       

TOTAL

                               

Gross Goodwill

    12,273     127     (938 )   194     11,656  

Impairments

    (2,696 )       935         (1,761 )
                       

Carrying Amount of Goodwill

  $ 9,577   $ 127   $ (3 ) $ 194   $ 9,895  
                       

        The following table sets forth the gross carrying amount and accumulated amortization of the Company's intangible assets as of June 24, 2011 and September 24, 2010 ($ in millions):

 
  June 24, 2011   September 24, 2010
 
  Gross
Carrying
Amount
  Accumulated
Amortization
  Weighted
Average
Amortization
Period
  Gross
Carrying
Amount
  Accumulated
Amortization
  Weighted
Average
Amortization
Period

Amortizable:

                               
 

Contracts and related customer relationships

  $ 8,292   $ 5,133   14 years   $ 7,664   $ 4,606   14 years
 

Intellectual property

    553     487   20 years     546     477   20 years
 

Other

    51     20   9 years     29     15   8 years
                         
 

Total

  $ 8,896   $ 5,640   14 years   $ 8,239   $ 5,098   14 years
                         

Non-Amortizable:

                               
 

Intellectual property

  $ 215             $ 213          
 

Other

    87               92          
                             
 

Total

  $ 302             $ 305          
                             

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TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

7.    Goodwill and Intangible Assets (Continued)

        Intangible asset amortization expense for the quarters ended June 24, 2011 and June 25, 2010 was $157 million and $141 million, respectively. Intangible asset amortization expense was $461 million and $397 million for the nine months ended June 24, 2011 and June 25, 2010, respectively.

        The estimated aggregate amortization expense on intangible assets is expected to be approximately $175 million for the remainder of 2011, $575 million for 2012, $500 million for 2013, $400 million for 2014, $350 million for 2015 and $300 million for 2016.

8.    Debt

        Debt as of June 24, 2011 and September 24, 2010 is as follows ($ in millions):

 
  June 24, 2011   September 24, 2010  

Commercial paper(1)

  $ 40   $  

6.75% public notes due 2011(2)

        516  

6.0% public notes due 2013

    655     655  

4.125% public notes due 2014

    499     499  

3.375% public notes due 2015

    498     498  

3.75% public notes due 2018

    249      

8.5% public notes due 2019

    750     750  

7.0% public notes due 2019

    432     432  

6.875% public notes due 2021

    715     715  

4.625% public notes due 2023

    248      

Other(1)(2)

    101     123  
           

Total debt

    4,187     4,188  

Less current portion

    42     536  
           

Long-term debt

  $ 4,145   $ 3,652  
           

(1)
Commercial paper, plus $2 million of the amount shown as other, comprise the current portion of the Company's total debt as of June 24, 2011.

(2)
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 September 24, 2010.

    Fair Value

        The carrying amount of Tyco's debt subject to the fair value disclosure requirements as of June 24, 2011 and September 24, 2010 was $4,086 million and $4,065 million, respectively. The Company has determined the fair value of such debt to be $4,645 million and $4,730 million as of June 24, 2011 and September 24, 2010, 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 that is traded in active markets. As of June 24, 2011 and September 24, 2010, the fair value of the Company's debt which was actively traded was $4,605 million and $4,730 million, respectively. Additionally, the Company believes the carrying amount of its commercial paper of $40 million as of June 24, 2011 approximates fair value based on the short-term nature of such debt.

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TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

8.    Debt (Continued)

    Commercial Paper

        During the third quarter of fiscal 2011, Tyco International Finance, S.A. ("TIFSA"), the Company's finance subsidiary, issued commercial paper to U.S. institutional accredited investors and qualified institutional buyers. Borrowings under the commercial paper program are available for general corporate purposes. As of June 24, 2011, TIFSA had $40 million of commercial paper outstanding, which bore interest at an average rate of 0.37%. As of September 24, 2010, TIFSA had no commercial paper outstanding.

    Credit Facilities

        On March 24, 2011, TIFSA, as the Borrower, and the Company as the Guarantor, entered into a Four-Year Senior Unsecured Credit Agreement, providing for revolving credit commitments in the aggregate amount of $750 million (the "Credit Agreement"). In connection with entering into the Credit Agreement, TIFSA and the Company terminated the existing Three-Year Senior Unsecured Credit Agreement, dated June 24, 2008, which provided for revolving credit commitments in the aggregate amount of $500 million, and which was scheduled to expire in June 2011. The Credit Agreement also reduced the lenders' commitments under the existing Five-Year Senior Unsecured Credit Agreement, dated April 25, 2007, from an aggregate of $1.19 billion to $750 million, and which is scheduled to expire in April 2012.

        As a result of entering into the Credit Agreement and the termination and reduction described above, the Company's committed revolving credit facilities totaled $1.5 billion as of June 24, 2011. These revolving credit facilities may be used for working capital, capital expenditures and general corporate purposes. As of June 24, 2011, there were no amounts drawn under the Company's revolving credit facilities, although the Company had dedicated $40 million of availability to backstop outstanding commercial paper. As of September 24, 2010, no amounts were drawn under the Company's former credit facilities. Interest under the revolving credit facilities is variable and is calculated by reference to LIBOR or an alternate base rate.

    2011 Debt Issuance/Repayment

        On January 12, 2011, TIFSA issued $250 million aggregate principal amount of 3.75% Notes due on January 15, 2018 (the "2018 Notes") and $250 million aggregate principal amount of 4.625% Notes due on January 15, 2023 (the "2023 Notes"), which are fully and unconditionally guaranteed by the Company. TIFSA received total net proceeds of approximately $494 million after deducting debt issuance costs of approximately $1 million for the 2018 Notes and $2 million for the 2023 Notes, as well as debt discount of approximately $1 million for the 2018 Notes and $2 million for the 2023 Notes. The net proceeds of the aforementioned debt issuances, along with other available funds, were used to fund the repayment upon maturity of all of the Company's outstanding 6.75% Notes due February 2011 with a principal amount of $516 million. The 2018 Notes and the 2023 Notes are unsecured and rank equally with TIFSA's other unsecured and unsubordinated debt.

        Prior to January 15, 2018 in the case of the 2018 Notes and prior to October 15, 2022 in case of the 2023 Notes, TIFSA may redeem any of the notes at a redemption price equal to the greater of the principal amount of the notes of such series or a make-whole amount, plus in each case, accrued and unpaid interest. On or after October 15, 2022, TIFSA may redeem the 2023 Notes at a redemption price equal to 100% of the principal amount of the notes plus accrued and unpaid interest. The holders

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TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

8.    Debt (Continued)


of both the 2018 Notes and the 2023 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, each as defined in the indenture governing the notes. The debt issuance costs will be amortized from the date of issuance to the maturity date of each series of the notes. Interest is payable semi-annually on January 15th and July 15th for both the 2018 Notes and 2023 Notes.

    2010 Debt Issuance/Repayment

        On May 5, 2010, TIFSA issued $500 million aggregate principal amount of 3.375% notes due on October 15, 2015, which are fully and unconditionally guaranteed by the Company (the "2015 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 net proceeds, along with other available funds, were used to redeem all of the Company's outstanding 6.375% notes due October 2011. The 2015 notes are unsecured and rank equally with TIFSA's other unsecured and unsubordinated debt. TIFSA may redeem any of the 2015 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 2015 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 the occurrence of both a change of control and a rating event, each as defined in the Indenture governing the notes. The debt issuance costs will be amortized from the date of issuance to the maturity date. Interest is payable semiannually on April 15th and October 15th.

        On May 28, 2010, the Company redeemed all of its 6.375% public notes due 2011 (the "2011 notes"), 7% notes due 2028 and 6.875% notes due 2029, outstanding at that time, which aggregated $878 million in principal amount. As a result of the debt redemption, the Company recorded an $87 million charge to other expense, net as a loss on extinguishment of debt. The charge is comprised of the make-whole premium, write-off of the unamortized debt issuance costs and discount related to the extinguished bonds and a net loss recognized upon termination of the associated interest rate swap contracts related to the 2011 notes.

        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 a rating event, each as defined in the Indenture governing the notes. The debt issuance costs will be amortized from the date of issuance to the maturity date. Interest is payable semiannually on April 15th and October 15th.

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TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

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 June 24, 2011 and September 24, 2010. 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 the fair value of debt.

Derivative Instruments

        In the normal course of business, Tyco is exposed to market risk arising from changes in currency exchange rates, interest rates and commodity prices. The Company uses derivative financial instruments to manage exposures to foreign currency, interest rate and commodity price risks. The Company's objective for utilizing derivative financial instruments is to manage these risks using the most effective methods to eliminate or reduce the impacts of these exposures. The Company does not use derivative financial instruments for trading or speculative purposes.

        For derivative instruments that are designated and qualified as hedging instruments for accounting purposes, the Company documented and linked the relationships between the hedging instruments and hedged items. 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. These hedges did not result in any hedge ineffectiveness for the quarters and nine months ended June 24, 2011 and June 25, 2010.

        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 the Company's Statement of Operations, with the exception of net investment hedges for which changes in fair value are reported in the cumulative translation component of accumulated other comprehensive income (loss) to the extent the hedges are effective. The ineffective portion of the hedge, if any, is recognized in the Consolidated Statement of Operations. 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 June 24, 2011 and September 24, 2010 or Consolidated Statements of Operations and Statement of Cash Flows for the quarters and nine months ended June 24, 2011 and June 25, 2010.

Foreign Currency Exposures

        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 the derivative 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 June 24, 2011 and September 24, 2010, the total gross notional amount of the Company's foreign exchange contracts was $815 million and $860 million, respectively.

        Effective March 17, 2009, Tyco changed its jurisdiction of incorporation from Bermuda to Switzerland. Tyco made the final dividend payment in the form of a reduction of capital in February 2011, denominated in Swiss francs (See Note 12). The Company paid dividends in U.S. dollars, based on the exchange rate in effect shortly before the payment date. Fluctuations in the value of the U.S.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

9.    Financial Instruments (Continued)


dollar compared to the Swiss franc between the date the dividend was approved and paid increased or decreased the U.S. dollar amount required to be paid. The Company managed 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. Beginning in May 2011, the Company makes dividend payments out of contributed surplus in U.S. dollars, which has eliminated the need to use currency hedges for dividend payments.

        The Company hedges its net investment in certain foreign operations through the use of foreign exchange forward contracts. The objective is to minimize the exposure to changes in the value of the foreign currency denominated net investment. The aggregate notional amount of these hedges was $227 million and $255 million as of June 24, 2011 and September 24, 2010, respectively. Changes in the fair value of forward contracts qualifying as net investment hedges are reported in cumulative translation component of accumulated other comprehensive income (loss) to the extent the hedges are effective. The ineffective portion of the hedge was not material to the Company's Consolidated Statement of Operations. These contracts did not have a material impact to the Company's Consolidated Balance Sheets as of June 24, 2011 and September 24, 2010.

Interest Rate Exposures

        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. Since the third quarter of 2009, TIFSA has been entering into interest rate swap transactions with the objective of managing the exposure to interest rate risk by converting interest rates of fixed-rate debt to variable rates. During the second quarter of 2011, TIFSA also entered into interest rate swap contracts to hedge $155 million notional amount of the 4.125% public notes due 2014. In these contracts, TIFSA 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. In connection with the maturity of the 6.75% public notes during the second quarter of 2011, TIFSA settled the corresponding interest rate swaps. As of June 24, 2011 and September 24, 2010, the total gross notional amount of the Company's interest rate swap contracts was $1.2 billion and $1.5 billion, respectively.

Commodity Exposures

        During fiscal 2011 and 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.

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

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9.    Financial Instruments (Continued)


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 June 24, 2011, 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 June 24, 2011 without giving consideration to the effects of legally enforceable master netting agreements was approximately $45 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.

Investments

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

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9. Financial Instruments (Continued)

        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 June 24, 2011 and September 24, 2010, 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 June 24, 2011  
($ in millions)
  Level 1   Level 2   Total  

Available-for-Sale Securities:

                   
 

Corporate debt securities

  $   $ 45   $ 45  
 

U.S. Government debt securities

    97     106     203  
               

Total

  $ 97   $ 151   $ 248  
               

 

 
  As of September 24, 2010  
($ in millions)
  Level 1   Level 2   Total  

Available-for-Sale Securities:

                   
 

Corporate debt securities

  $   $ 60   $ 60  
 

U.S. Government debt securities

    95     122     217  
 

Other debt securities

        6     6  
               

Total

  $ 95   $ 188   $ 283  
               

        During the nine months ended June 24, 2011, the Company did not have any significant transfers within the fair value hierarchy.

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9. Financial Instruments (Continued)

Other

        The Company had $3.0 billion of intercompany loans designated as permanent in nature as of June 24, 2011 and September 24, 2010, for both periods. For the quarters ended June 24, 2011 and June 25, 2010, the Company recorded $37 million of cumulative translation gain and $59 million of cumulative translation loss, respectively, through accumulated other comprehensive income (loss) related to these loans. For the nine months ended June 24, 2011 and June 25, 2010, the Company recorded $169 million of cumulative translation gain and $174 million of cumulative translation loss, respectively, through accumulated 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 TE Connectivity 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 were not specific to the business operations of any of the companies. Substantially all of these legacy matters have been resolved. Additionally, at the time of the Separation, the Company, Covidien and TE Connectivity agreed to allocate responsibility for certain legacy tax claims pursuant to the same formula under the Tax Sharing Agreement. A number of the legacy tax claims remain outstanding. See Note 5.

Legacy Securities Matters

        Since June 2007, the Company has resolved substantially all of the legacy claims related to securities fraud and similar matters, with the exception of the claims related to former management and Mr. Frank Walsh Jr., a former director, described below. During the quarter ended December 24, 2010 certain contingencies related to the previously disclosed settlement of Stumpf v. Tyco International Ltd. class action lawsuit elapsed, and the Company adjusted its remaining reserves for this and other legacy securities matters, recognizing a net gain of $7 million during such quarter.

        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, Mr. Kozlowski, through counterclaims, and Mr. Swartz, through demand letters, are seeking an aggregate of approximately $137 million allegedly due in connection with their compensation and retention arrangements and under the Employee Retirement Income Security Act ("ERISA").

        With respect to Mr. Kozlowski, on December 1, 2010, the U.S. District Court for the Southern District of New York ruled in favor of several of the Company's affirmative claims against him before trial, while dismissing all of Mr. Kozlowski's counterclaims for pay and benefits after 1995. With respect to Mr. Swartz, on March 3, 2011, the same Court granted the Company's motion for summary judgment. The Court further ruled that issues related to damages will need to be resolved at trial. No trial date has been set. The Company expects Mr. Kozlowski and Mr. Swartz to contest these decisions. As a result, the Company has and will continue to maintain the reserve recorded in its Consolidated Balance Sheet for the amounts allegedly due under their compensation and retention arrangements and under ERISA until the appeals process is complete. Although the ultimate resolution of these matters

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10. Commitments and Contingencies (Continued)


could differ materially from these estimates, the Company does not believe such resolution would have a material adverse effect on its financial position, results of operations or cash flows.

        Tyco has also brought an action against Mr. Walsh in connection with the damages suffered by Tyco arising from Mr. Walsh's breach of his fiduciary duties to Tyco. In October 2010, the U.S. District Court for the Southern District of New York denied Tyco's affirmative claims for recovery of damages against Mr. Walsh. Tyco is pursuing an appeal. This affirmative matter, and the affirmative matters against Messrs. Kozlowski and Swartz, are not subject to the liability sharing provisions of the Separation and Distribution Agreement. Separately, Mr. Walsh is pursuing a New York state court claim against the Company asserting his entitlement to indemnification. This action is subject to the liability sharing provisions of the Separation and Distribution Agreement.

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 June 24, 2011, Tyco concluded that it was probable that it would incur remedial costs in the range of approximately $24 million to $79 million. As of June 24, 2011, Tyco concluded that the best estimate within this range is approximately $31 million, of which $11 million is included in accrued and other current liabilities and $20 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 along with numerous other companies are named as defendants in personal injury lawsuits based on alleged exposure to asbestos-containing materials. These cases typically involve product liability claims based primarily on allegations of manufacture, sale or distribution of industrial products that either contained asbestos or were attached to or used with asbestos-containing components manufactured by third-parties. Each case typically names between dozens to hundreds of corporate defendants. While the Company has observed an increase in the number of these lawsuits over the past several years, including lawsuits by plaintiffs with mesothelioma-related claims, a large percentage of these suits have not presented viable legal claims and, as a result, have been dismissed by the courts. The Company's 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. As of June 24, 2011, there were approximately 4,400 lawsuits pending against the Company, its subsidiaries or entities for which the Company has assumed responsibility. Each lawsuit typically includes several claims, and the Company has determined that there were approximately 5,100 claims outstanding as of June 24, 2011, which reflects the Company's current estimate of the number of viable claims made against it, its affiliates or entities for which it has assumed responsibility in connection with acquisitions or divestitures. This amount includes adjustments for claims that are not actively being prosecuted, identify incorrect defendants or are duplicative of other actions.

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10. Commitments and Contingencies (Continued)

        Annually, during the Company's third quarter, the Company performs an analysis with the assistance of outside counsel and other experts to update its estimated asbestos-related assets and liabilities. Due to a high degree of uncertainty regarding the pattern and length of time over which claims will be made and then settled or litigated, the Company uses multiple estimation methodologies based on varying scenarios of potential outcomes to estimate the range of loss. The Company's estimate of the liability and corresponding insurance recovery for pending and future claims and defense costs is predominantly based on claim experience over the past five years, and a projection which covers claims expected to be filed, including related defense costs, over the next seven years on an undiscounted basis. The Company has concluded that estimating the liability beyond the seven year period will not provide a reasonable estimate, as these uncertainties increase significantly as the projection period lengthens. The Company's estimate of asbestos-related insurance recoveries represents estimated amounts due to the Company for previously paid and settled claims and the probable reimbursements relating to its estimated liability for pending and future claims. In determining the amount of insurance recoverable, the Company considers a number of factors, including available insurance, allocation methodologies, solvency and creditworthiness of the insurers. On a quarterly basis, the Company re-evaluates the assumptions used to perform the annual analysis and records an expense as necessary to reflect changes in its estimated liability and related insurance asset. As of June 24, 2011, the Company's estimated net liability of $91 million was recorded within the Company's Consolidated Balance Sheet as a liability for pending and future claims and related defense costs of $327 million, and separately as an asset for insurance recoveries of $236 million. Similarly, as of September 24, 2010, the Company's estimated net liability of $106 million was recorded within the Company's Consolidated Balance Sheet as a liability for pending and future claims and related defense costs of $309 million, and separately as an asset for insurance recoveries of $203 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, amount of insurance 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 June 24, 2011 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. The Company reported to the U.S. Department of Justice ("DOJ") and the SEC the

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10. Commitments and Contingencies (Continued)


investigative steps and remedial measures that it has taken in response to these and other allegations and its internal investigations. In 2005, the Company informed the DOJ and the SEC that it 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 completed, has revealed that some business practices may not comply with Tyco and FCPA requirements, and in February 2010, the Company initiated discussions with the DOJ and SEC aimed at resolving these matters. Discussions remain ongoing, and the Company cannot predict the timing of their resolution or their outcome and cannot estimate the range of potential loss or the form of penalty 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, consent to the imposition of a compliance monitor, or suffer other criminal or civil penalties or adverse impacts, including being subject to lawsuits brought by private litigants, each of which may have a material adverse effect on the Company's financial position, results of operations or cash flows.

        Covidien and TE Connectivity 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 TE Connectivity, 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 TE Connectivity.

        As previously disclosed, in early 2007 certain former subsidiaries in the Company's Flow Control business were charged, prior to their divestiture, by the German Federal Cartel Office ("FCO") with engaging 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 competition law. The Company is cooperating with the FCO in its ongoing investigation of this violation. 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.

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10. Commitments and Contingencies (Continued)

        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, $17.6 million of which has been cumulatively paid through June 24, 2011. 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.

Broadview Security Contingency

        On May 14, 2010, the Company acquired Broadview Security, which is a business that was formerly owned by The Brink's Company. Under the Coal Industry Retiree Health Benefit Act of 1992, as amended (the "Coal Act"), The Brink's Company and its majority-owned subsidiaries at July 20, 1992 (including certain legal entities acquired in the Broadview Security acquisition) are jointly and severally liable with certain of The Brink's Company's other current and former subsidiaries for health care coverage obligations provided for by the Coal Act. A Voluntary Employees' Beneficiary Associate ("VEBA") trust has been established by The Brink's Company to pay for these liabilities, although the trust may have insufficient funds to satisfy all future obligations. At the time of its spin-off from The Brink's Company, Broadview Security entered into an agreement in which The Brink's Company agreed to indemnify it for any and all liabilities and expenses related to The Brink's Company's former coal operations, including any health care coverage obligations. The Brink's Company has agreed that this indemnification survives the Company's acquisition of Broadview Security. The Company has evaluated its potential liability under the Coal Act as a contingency in light of all known facts, including the funding of the VEBA, and indemnification provided by The Brinks Company. The Company has concluded that no accrual is necessary due to the existence of the indemnification and its belief that The Brink's Company and VEBA will be able to satisfy all future obligations under the Coal Act.

ADT Dealer Litigation

        As previously reported, in 2002, the SEC's Division of Enforcement conducted an investigation related to past accounting practices for dealer connect fees that ADT had charged to its authorized dealers upon purchasing customer accounts. The investigation related to accounting practices employed by the Company's former management, which were discontinued in 2003. Although the Company settled with the SEC in 2006, a number of former dealers and related parties have filed lawsuits against the Company in the United States and in other countries, 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 plaintiffs' key claims. The plaintiffs have appealed this verdict. 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.

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10. Commitments and Contingencies (Continued)

Other Matters

        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.

Income Tax Matters

        See Note 5 for a more detailed discussion of the status of the Company's outstanding income tax audits.

11. Retirement Plans

        Defined Benefit Pension Plans—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 Nine Months Ended  
 
  June 24,
2011
  June 25,
2010
  June 24,
2011
  June 25,
2010
 

Service cost

  $ 2   $ 3   $ 7   $ 7  

Interest cost

    10     12     31     34  

Expected return on plan assets

    (12 )   (12 )   (37 )   (36 )

Amortization of prior service cost

                1  

Amortization of net actuarial loss

    3     6     9     20  
                   

Net periodic benefit cost

  $ 3   $ 9   $ 10   $ 26  
                   

 

 
  Non-U.S. Plans  
 
  For the Quarters Ended   For the Nine Months Ended  
 
  June 24,
2011
  June 25,
2010
  June 24,
2011
  June 25,
2010
 

Service cost

  $ 5   $ 5   $ 14   $ 19  

Interest cost

    17     19     51     56  

Expected return on plan assets

    (17 )   (18 )   (52 )   (52 )

Amortization of prior service cost

                (1 )

Amortization of net actuarial loss

    3     6     9     20  

Plan settlements and curtailment termination benefits

    (1 )   (22 )   (1 )   (22 )
                   

Net periodic benefit cost

  $ 7   $ (10 ) $ 21   $ 20  
                   

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11. Retirement Plans (Continued)

        The estimated net actuarial loss 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 is expected to be $10 million.

        The estimated net actuarial loss 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 is expected to be $12 million.

        The Company's funding policy is to make contributions in accordance with the laws and customs of the various countries in which it operates and 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 2011 of $10 million for U.S. plans and $65 million for non-U.S. plans. During the nine months ended June 24, 2011 the Company made required contributions of $6 million to its U.S. pension plans and $51 million to its non-U.S. pension plans. The Company also made voluntary contributions of $15 million to its U.S. plans during the nine months ended June 24, 2011.

        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 in the form of a return of capital from the Company's registered share capital were not subject to Swiss withholding taxes. As a result, the Company paid dividends in the form of a reduction of registered share capital through February 2011. Due to a change in Swiss law effective January 1, 2011, the Company may now make dividend payments from its contributed surplus equity position in its Swiss statutory accounts free of Swiss withholding taxes. Unlike payments made in the form of a reduction to registered share capital, which are required to be denominated in Swiss francs and converted to U.S. dollars at the time of payment, payments from the contributed surplus account may effectively be denominated in U.S. dollars.

        Under Swiss law, the authority to declare dividends is vested in the general meeting of shareholders, and on March 9, 2011, the Company's shareholders approved an annual dividend on the Company's common shares of $1.00 per share, which will be paid from contributed surplus in four installments of $0.25 per share. As a result, the Company recorded an accrued dividend of $468 million as of March 9, 2011 and a corresponding reduction to contributed surplus. The first installment of $0.25 was paid on May 25, 2011 to shareholders of record on April 29, 2011. The second installment of $0.25 will be paid on August 24, 2011 to shareholders of record on July 29, 2011. The Company records its accrued dividend in accrued and other current liabilities in the Company's Consolidated Balance Sheet.

        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 was 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 to shareholders on record on May 14, 2010, July 30, 2010, October 29, 2010 and January 28, 2011, respectively. As a result, the Company recorded an accrued dividend of CHF 428 million as of March 10, 2010, which approximated

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

12. Shareholders' Equity (Continued)


$399 million based on the exchange rate in effect on that date. The accrued dividend was recorded in accrued and other current liabilities in the Company's Consolidated Balance Sheet as of March 26, 2010 and as a corresponding reduction of common shares, which reduced the par value of the Company's common shares from CHF 7.60 to CHF 6.70. 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.

        On May 14, 2010, the Company acquired all of the outstanding equity of BHS. BHS shareholders who received Tyco common stock as consideration in the merger were included in the first installment of dividend payments that were paid on May 26, 2010. As a result, the Company recorded an accrued dividend of CHF 32 million as of May 14, 2010, which is approximately $28 million based on the exchange rate in effect on that date.

Common Stock

        As of June 24, 2011, the Company's share capital amounted to CHF 3,258,632,435, or 486,363,050 registered common shares with a par value of CHF 6.70 per share following the cancellation of 28,088,101 registered shares which had been approved at the March 9, 2011 annual general meeting. Until March 9, 2013, the Board of Directors may increase the Company's share capital by a maximum amount of CHF 1,628,100,000 by issuing a maximum of 243,000,000 shares. In addition, until March 9, 2013 (i) the share capital of the Company may be increased by an amount not exceeding CHF 321,127,717 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 and (ii) the share capital of the Company may be increased by an amount not exceeding CHF 321,127,717 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.

Share Repurchase Program

        The Company's Board of Directors approved the $1.0 billion 2011 share repurchase program, the $1.0 billion 2010 share repurchase program and the $1.0 billion 2008 share repurchase program, in April 2011, September 2010 and July 2008, respectively. During the nine months ended June 24, 2011, the Company repurchased approximately 30 million shares for approximately $1.3 billion under these programs, which reduced the amount of common shares outstanding and decreased the dividends declared on the Consolidated Statement of Shareholders' Equity as of June 24, 2011. Both the 2008 and 2010 share repurchase programs were completed during the nine months ended June 24, 2011. As of June 24, 2011, approximately $700 million remained outstanding under the 2011 share repurchase program.

13. Share Plans

        During the quarter ended December 24, 2010, 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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

13. Share Plans (Continued)


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 $9.13, $37.29 and $41.17, respectively. The weighted-average assumptions used in the Black-Scholes option pricing model included an expected stock price volatility of 33%, a risk free interest rate of 1.26%, an expected annual dividend per share of $0.84 and an expected option life of 5.2 years.

        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.

14. Accumulated Other Comprehensive Income (Loss)

        The components of accumulated other comprehensive income (loss) are as follows ($ in millions):

 
  Currency
Translation(1)(2)
  Unrealized Gain
(Loss) on
Marketable
Securities
  Retirement
Plans
  Accumulated Other
Comprehensive
Loss
 

Balance as of September 25, 2009

  $ 415   $ 4   $ (506 ) $ (87 )
 

Pre-tax current period change

    (500 )   (2 )   108     (394 )
 

Divestiture of businesses

    (66 )           (66 )
 

Income tax benefit (expense)

    1         (39 )   (38 )
                   

Balance as of June 25, 2010

  $ (150 ) $ 2   $ (437 ) $ (585 )
                   

 

 
  Currency
Translation(1)(2)
  Unrealized Gain
(Loss) on
Marketable
Securities
  Retirement
Plans
  Accumulated Other
Comprehensive
(Loss) Income
 

Balance as of September 24, 2010

  $ 214   $ 4   $ (539 ) $ (321 )
 

Pre-tax current period change

    325     (1 )   15     339  
 

Divestiture of the Electrical and Metal Products business

    (35 )       33     (2 )
 

Income tax expense

    (1 )       (5 )   (6 )
                   

Balance as of June 24, 2011

  $ 503   $ 3   $ (496 ) $ 10  
                   

(1)
During the nine months ended June 24, 2011 and June 25, 2010, $161 million and $66 million, respectively, of cumulative translation gains, were transferred from currency translation

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14. Accumulated Other Comprehensive Income (Loss) (Continued)

    adjustments as a result of the sale of foreign entities. Of these amounts, $126 million and nil, respectively, were included in (loss) income from discontinued operations.

(2)
Income tax of the net investment hedge was $1 million of expense for the nine months ended June 24, 2011 and $1 million of a benefit for the nine months ended June 25, 2010.

15. 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 2011, the Company realigned its Safety Products segment between its ADT Worldwide and Fire Protection segments to create two new segments: Tyco Security Solutions and Tyco Fire Protection. Tyco Security Solutions consists of the former ADT Worldwide segment as well as the portion of the former Safety Products segment that manufactures security products including intrusion, security, access control and video management systems. Tyco Fire Protection consists of the former Fire Protection Services segment as well as a number of businesses from the former Safety Products segment including the fire suppression and life safety products businesses. In addition, various businesses were realigned between Tyco Security Solutions and Tyco Fire Protection.

        As a result of this realignment, as well as the sale of a majority interest in the Electrical and Metal Products business (See Note 2), the Company has three core businesses: Tyco Security Solutions, Tyco Fire Protection and Tyco Flow Control.

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15. Consolidated Segment Data (Continued)

        As a result of the realignment of these business activities the revenue and operating income for the quarter and nine months ended June 25, 2010 have been recast. Selected information by segment is presented in the following tables ($ in millions):

 
  For the Quarters
Ended
  For the Nine
Months Ended
 
 
  June 24,
2011
  June 25,
2010
  June 24,
2011
  June 25,
2010
 

Net revenue(1):

                         
 

Tyco Security Solutions

  $ 2,165   $ 1,921   $ 6,351   $ 5,687  
 

Tyco Fire Protection

    1,200     1,114     3,408     3,308  
 

Tyco Flow Control

    928     849     2,558     2,505  
 

Electrical and Metal Products

        390     347     1,023  
                   
 

Net revenue

  $ 4,293   $ 4,274   $ 12,664   $ 12,523  
                   

(1)
Revenue by operating segment excludes intercompany transactions.

 
  For the Quarters Ended   For the Nine Months Ended  
 
  June 24,
2011
  June 25,
2010
  June 24,
2011
  June 25,
2010
 

Operating income (loss):

                         
 

Tyco Security Solutions

  $ 327   $ 231   $ 997   $ 811  
 

Tyco Fire Protection

    146     134     362     346  
 

Tyco Flow Control

    103     113     289     306  
 

Electrical and Metal Products

        40     7     87  
 

Corporate and Other(1)

    (101 )   (143 )   (37 )   (345 )
                   
 

Operating income

  $ 475   $ 375   $ 1,618   $ 1,205  
                   

(1)
Operating income for the nine months ended June 24, 2011 included a gain, net of working capital adjustments, of $248 million related to the sale of a majority interest of the Company's Electrical and Metal Products business. See Note 2.

16. Inventory

        Inventories consisted of the following ($ in millions):

 
  June 24,
2011
  September 24,
2010
 

Purchased materials and manufactured parts

  $ 492   $ 504  

Work in process

    199     192  

Finished goods

    715     747  
           
 

Inventories

  $ 1,406   $ 1,443  
           

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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

17. Property, Plant and Equipment

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

 
  June 24,
2011
  September 24,
2010
 

Land

  $ 144   $ 154  

Buildings

    723     816  

Subscriber systems

    6,540     6,085  

Machinery and equipment

    2,290     2,457  

Property under capital leases(1)

    63     62  

Construction in progress

    146     154  

Accumulated depreciation(2)

    (5,899 )   (5,572 )
           
 

Property, Plant and Equipment, net

  $ 4,007   $ 4,156  
           

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

(2)
Accumulated amortization of capital lease assets was $40 million and $34 million as of June 24, 2011 and September 24, 2010, respectively.

18. 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 TE Connectivity in accordance with the terms of the Separation and Distribution Agreement and the Tax Sharing Agreement. The guarantees primarily relate to certain contingent tax liabilities included in the Tax Sharing Agreement. At the time of the Separation, Tyco recorded a liability necessary to recognize the fair value of such guarantees and indemnifications. In the absence of observable transactions for identical or similar guarantees, the Company determined the fair value of these guarantees and indemnifications utilizing expected present value measurement techniques. Significant assumptions utilized to determine fair value included determining a range of potential outcomes, assigning a probability weighting to each potential outcome and estimating the anticipated timing of resolution. The probability weighted outcomes were discounted using the Company's incremental borrowing rate. The liability necessary to reflect the fair value of guarantees and indemnifications under the Tax Sharing agreement was $554 million (of which $188 million and $156 million are included in accrued and other current liabilities and the remaining amounts in other liabilities as of June 24, 2011 and September 24, 2010, respectively), on the Company's Consolidated Balance Sheets as of both June 24, 2011 and September 24, 2010. During 2011, the Company reclassified $32 million from other liabilities to accrued and other current liabilities as it expects to make a net payment within the next twelve months to Covidien and TE Connectivity related to the resolution of certain IRS audit and pre-Separation tax matters. The guarantees primarily relate to certain contingent tax liabilities included in the Tax Sharing Agreement. See Note 5.

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18. Guarantees (Continued)

        In addition, Tyco historically provided support in the form of financial and/or performance guarantees to various Covidien and TE Connectivity operating entities. In connection with the Separation, the Company worked with the guarantee counterparties to cancel or assign these guarantees to Covidien or TE Connectivity. To the extent these guarantees were not assigned prior to the Separation date, Tyco assumed primary liability on any remaining such support. The Company's obligations were $4 million, which were included in other liabilities on the Company's Consolidated Balance Sheets as of June 24, 2011 and September 24, 2010, 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.

        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 24, 2010 to June 24, 2011 were as follows ($ in millions):

Balance as of September 24, 2010

  $ 57  

Warranties issued

    18  

Changes in estimates

    (2 )

Settlements

    (19 )

Currency translation

    2  
       

Balance as of June 24, 2011

  $ 56  
       

        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.

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19.    Tyco International Finance S.A.

        TIFSA, a wholly-owned subsidiary of the Company, has public debt securities outstanding which are fully and unconditionally guaranteed by Tyco. See Note 8. 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 June 24, 2011
($ in millions)

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

Net revenue

  $   $   $ 4,293   $   $ 4,293  

Cost of product sales and services

            2,640         2,640  

Selling, general and administrative expenses

    3     2     1,138         1,143  

Restructuring, asset impairments and divestiture charges, net

            35         35  
                       
 

Operating (loss) income

    (3 )   (2 )   480         475  

Interest income

            8         8  

Interest expense

        (57 )   (2 )       (59 )

Other (expense) income, net

    (12 )       9         (3 )

Equity in net income of subsidiaries

    610     356         (966 )    

Intercompany interest and fees

    (231 )   76     155          
                       
 

Income from continuing operations before income taxes

    364     373     650     (966 )   421  

Income tax expense

        (4 )   (54 )       (58 )
                       
 

Income from continuing operations

    364     369     596     (966 )   363  

Loss from discontinued operations, net of income taxes

    (5 )   (5 )   (5 )   10     (5 )
                       
 

Net income

    359     364     591     (956 )   358  

Less: noncontrolling interest in subsidiaries net loss

            (1 )       (1 )
                       
 

Net income attributable to Tyco common shareholders

  $ 359   $ 364   $ 592   $ (956 ) $ 359  
                       

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

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

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
For the Quarter Ended June 25, 2010
($ in millions)

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

Net revenue

  $   $   $ 4,274   $   $ 4,274  

Cost of product sales and services

            2,693         2,693  

Selling, general and administrative expenses

    2     3     1,158         1,163  

Restructuring, asset impairments and divestiture charges, net

            43         43  
                       
 

Operating (loss) income

    (2 )   (3 )   380         375  

Interest income

            7         7  

Interest expense

        (70 )   (1 )       (71 )

Other (expense) income, net

        (87 )   2         (85 )

Equity in net income of subsidiaries

    595     301         (896 )    

Intercompany interest and fees

    (343 )   86     257          
                       
 

Income from continuing operations before income taxes

    250     227     645     (896 )   226  

Income tax benefit

        22     4         26  
                       
 

Income from continuing operations

    250     249     649     (896 )   252  

Income from discontinued operations, net of income taxes

    4     4     4     (8 )   4  
                       
 

Net income

    254     253     653     (904 )   256  

Less: noncontrolling interest in subsidiaries net income

            2         2  
                       
 

Net income attributable to Tyco common shareholders

  $ 254   $ 253   $ 651   $ (904 ) $ 254  
                       

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

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
For the Nine Months Ended June 24, 2011
($ in millions)

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

Net revenue

  $   $   $ 12,664   $   $ 12,664  

Cost of product sales and services

            7,834         7,834  

Selling, general and administrative expenses

    4     7     3,354         3,365  

Restructuring, asset impairments and divestiture charges (gain), net

            (153 )       (153 )
                       
 

Operating (loss) income

    (4 )   (7 )   1,629         1,618  

Interest income

            26         26  

Interest expense

        (179 )   (5 )       (184 )

Other (expense) income, net

    (11 )       2         (9 )

Equity in net income of subsidiaries

    2,071     1,100         (3,171 )    

Intercompany interest and fees

    (883 )   256     627          
                       
 

Income from continuing operations before income taxes

    1,173     1,170     2,279     (3,171 )   1,451  

Income tax expense

        (19 )   (259 )       (278 )
                       
 

Income from continuing operations

    1,173     1,151     2,020     (3,171 )   1,173  

Income from discontinued operations, net of income taxes

    160     160     160     (320 )   160  
                       
 

Net income

    1,333     1,311     2,180     (3,491 )   1,333  

Less: noncontrolling interest in subsidiaries net income

                     
                       
 

Net income attributable to Tyco common shareholders

  $ 1,333   $ 1,311   $ 2,180   $ (3,491 ) $ 1,333  
                       

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

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

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
For the Nine Months Ended June 25, 2010
($ in millions)

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

Net revenue

  $   $   $ 12,523   $   $ 12,523  

Cost of product sales and services

            7,912         7,912  

Selling, general and administrative expenses

    11     6     3,363         3,380  

Restructuring, asset impairments and divestiture charges, net

            26         26  
                       
 

Operating (loss) income

    (11 )   (6 )   1,222         1,205  

Interest income

            24         24  

Interest expense

        (217 )   (4 )       (221 )

Other income (expense), net

    12     (87 )   2         (73 )

Equity in net income of subsidiaries

    1,874     873         (2,747 )    

Intercompany interest and fees

    (1,023 )   256     767          
                       
 

Income from continuing operations before income taxes

    852     819     2,011     (2,747 )   935  

Income tax benefit (expense)

        18     (96 )       (78 )
                       
 

Income from continuing operations

    852     837     1,915     (2,747 )   857  

Income from discontinued operations, net of income taxes

    14     14     14     (28 )   14  
                       
 

Net income

    866     851     1,929     (2,775 )   871  

Less: noncontrolling interest in subsidiaries net income

            5         5  
                       
 

Net income attributable to Tyco common shareholders

  $ 866   $ 851   $ 1,924   $ (2,775 ) $ 866  
                       

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

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

CONDENSED CONSOLIDATING BALANCE SHEET

As of June 24, 2011

($ in millions)

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

Assets

                               

Current Assets:

                               
 

Cash and cash equivalents

  $   $   $ 1,629   $   $ 1,629  
 

Accounts receivable, net

            2,470         2,470  
 

Inventories

            1,406         1,406  
 

Intercompany receivables

    1,091     39     15,541     (16,671 )    
 

Prepaid expenses and other current assets

    22         924         946  
 

Deferred income taxes

            367         367  
 

Assets held for sale

                     
                       
   

Total current assets

    1,113     39     22,337     (16,671 )   6,818  

Property, plant and equipment, net

            4,007         4,007  

Goodwill

            9,895         9,895  

Intangible assets, net

            3,558         3,558  

Investment in subsidiaries

    47,520     18,419         (65,939 )    

Intercompany loans receivable

        12,787     21,729     (34,516 )    

Other assets

    69     317     2,313         2,699  
                       
   

Total Assets

  $ 48,702   $ 31,562   $ 63,839   $ (117,126 ) $ 26,977  
                       

Liabilities and Equity

                               

Current Liabilities:

                               
 

Loans payable and current maturities of long-term debt

  $   $ 40   $ 2   $   $ 42  
 

Accounts payable

            1,230         1,230  
 

Accrued and other current liabilities

    555     71     2,082         2,708  
 

Deferred revenue

            638         638  
 

Intercompany payables

    10,817     4,750     1,104     (16,671 )    
 

Liabilities held for sale

                     
                       
   

Total current liabilities

    11,372     4,861     5,056     (16,671 )   4,618  

Long-term debt

        4,088     57         4,145  

Intercompany loans payable

    22,776     3,114     8,626     (34,516 )    

Deferred revenue

            1,156         1,156  

Other liabilities

    377         2,499         2,876  
                       
   

Total Liabilities

    34,525     12,063     17,394     (51,187 )   12,795  
                       

Tyco Shareholders' Equity:

                               
 

Preference shares

            2,500     (2,500 )    
 

Common shares

    2,792                 2,792  
 

Common shares held in treasury

            (988 )       (988 )
 

Other shareholders' equity

    11,385     19,499     44,928     (63,439 )   12,373  
                       
   

Total Tyco Shareholders' Equity

    14,177     19,499     46,440     (65,939 )   14,177  

Noncontrolling interest

            5         5  
                       
   

Total Equity

    14,177     19,499     46,445     (65,939 )   14,182  
                       
   

Total Liabilities and Equity

  $ 48,702   $ 31,562   $ 63,839   $ (117,126 ) $ 26,977  
                       

49


Table of Contents


TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

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


CONDENSED CONSOLIDATING BALANCE SHEET

As of September 24, 2010

($ in millions)

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

Assets

                               

Current Assets:

                               
 

Cash and cash equivalents

  $   $   $ 1,775   $   $ 1,775  
 

Accounts receivable, net

            2,493         2,493  
 

Inventories

            1,443         1,443  
 

Intercompany receivables

    1,082     160     15,770     (17,012 )    
 

Prepaid expenses and other current assets

    69     2     865         936  
 

Deferred income taxes

            382         382  
 

Assets held for sale

    221