10-Q

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

FORM 10-Q

ý	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 2006
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)

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

Second Floor, 90 Pitts Bay Road, Pembroke, HM 08, Bermuda
(Address of Registrant's principal executive offices)

441-292-8674
(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 is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of "accelerated filer" and "large accelerated filer" in Rule 12b-2 of the Exchange Act (check one):

        Large accelerated filer ý Accelerated filer o Non-accelerated filer o

        Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No ý

        The number of common shares outstanding as of April 28, 2006 was 2,036,601,758

TYCO INTERNATIONAL LTD.
INDEX TO FORM 10-Q

		Page
Part I Financial Information:
Item 1. Financial Statements
	Consolidated Statements of Income (Unaudited) for the quarter and six months ended March 31, 2006 and April 1, 2005	1
	Consolidated Balance Sheets (Unaudited) as of March 31, 2006 and September 30, 2005	2
	Consolidated Statements of Cash Flows (Unaudited) for the six months ended March 31, 2006 and April 1, 2005	3
	Consolidated Statements of Shareholders' Equity (Unaudited) for the six months ended March 31, 2006 and April 1, 2005	4
	Notes to Consolidated Financial Statements (Unaudited)	5
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations		39
Item 3. Quantitative and Qualitative Disclosures About Market Risk		59
Item 4. Controls and Procedures		59
Part II Other Information:
Item 1. Legal Proceedings		61
Item 1A. Risk Factors		68
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		77
Item 3. Defaults Upon Senior Securities		77
Item 4. Submission of Matters to a Vote of Security Holders		77
Item 5. Other Information		78
Item 6. Exhibits		78
Signatures		79

PART I.    FINANCIAL INFORMATION

Item 1.    Financial Statements

TYCO INTERNATIONAL LTD.

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

(in millions, except per share data)

			For the Quarters Ended						For the Six Months Ended
			March 31, 2006			April 1, 2005			March 31, 2006			April 1, 2005
Revenue from product sales			$	8,262		$	8,065		$	16,049		$	15,719
Service revenue				1,944			1,928			3,863			3,875
	Net revenue			10,206			9,993			19,912			19,594
Cost of product sales				5,583			5,329			10,873			10,352
Cost of services				1,202			1,173			2,383			2,394
Selling, general and administrative expenses				2,021			1,960			4,008			3,925
Restructuring and asset impairment charges, net				8			4			20			11
Separation costs				25			—			33			—
(Gains) losses on divestitures				(41	)		2			(38	)		17
	Operating income			1,408			1,525			2,633			2,895
Interest income				33			31			70			68
Interest expense				(189	)		(208	)		(378	)		(424	)
Other expense, net				(2	)		(575	)		(3	)		(736	)
	Income from continuing operations before income taxes and minority interest			1,250			773			2,322			1,803
Income taxes				(168	)		(373	)		(430	)		(679	)
Minority interest				(2	)		(1	)		(5	)		(4	)
	Income from continuing operations			1,080			399			1,887			1,120
Loss from discontinued operations, net of income taxes				(58	)		(207	)		(295	)		(219	)
	Income before cumulative effect of accounting change			1,022			192			1,592			901
Cumulative effect of accounting change, net of income taxes				—			—			—			21
		Net income	$	1,022		$	192		$	1,592		$	922
Basic earnings per share:
	Income from continuing operations		$	0.54		$	0.20		$	0.94		$	0.56
	Loss from discontinued operations			(0.03	)		(0.10	)		(0.15	)		(0.11	)
	Income before cumulative effect of accounting change			0.51			0.10			0.79			0.45
	Cumulative effect of accounting change			—			—			—			0.01
	Net income		$	0.51		$	0.10		$	0.79		$	0.46
Diluted earnings per share:
	Income from continuing operations		$	0.52		$	0.19		$	0.91		$	0.53
	Loss from discontinued operations			(0.03	)		(0.09	)		(0.14	)		(0.10	)
	Income before cumulative effect of accounting change			0.49			0.10			0.77			0.43
	Cumulative effect of accounting change			—			—			—			0.01
	Net income		$	0.49		$	0.10		$	0.77		$	0.44
Weighted-average number of shares outstanding:
	Basic			2,019			2,010			2,011			2,009
	Diluted			2,107			2,182			2,109			2,194

See Notes to Consolidated Financial Statements.

1

TYCO INTERNATIONAL LTD.

CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(in millions, except share data)

			March 31, 2006		September 30, 2005
Assets
Current Assets:
	Cash and cash equivalents		$	2,389	$	3,206
	Accounts receivable, less allowance for doubtful accounts of $383 and $422, respectively			6,822		6,732
	Inventories			4,640		4,197
	Other current assets			3,273		3,090
	Assets held for sale			73		1,290
		Total current assets		17,197		18,515
Property, plant and equipment, net				9,162		9,238
Goodwill				24,538		24,557
Intangible assets, net				5,018		5,085
Other assets				5,141		5,226
		Total Assets	$	61,056	$	62,621
Liabilities and Shareholders' Equity
Current Liabilities:
	Current maturities of long-term debt		$	746	$	1,954
	Accounts payable			3,148		3,065
	Accrued and other current liabilities			5,913		6,552
	Liabilities held for sale			55		219
		Total current liabilities		9,862		11,790
Long-term debt				9,242		10,600
Other liabilities				7,718		7,720
		Total Liabilities		26,822		30,110
Commitments and Contingencies (Note 9)
Minority interest				48		61
Shareholders' Equity:
	Common shares, $0.20 par value, 4,000,000,000 shares authorized; 2,050,175,704 and 2,014,853,113 shares outstanding, net of 40,617,183 and 12,024,224 shares owned by subsidiaries, respectively			410		403
	Capital in excess:
		Share premium		8,667		8,540
		Contributed surplus		15,837		15,249
	Accumulated earnings			9,181		7,993
	Accumulated other comprehensive income			91		265
		Total Shareholders' Equity		34,186		32,450
		Total Liabilities and Shareholders' Equity	$	61,056	$	62,621

See Notes to Consolidated Financial Statements.

2

TYCO INTERNATIONAL LTD.

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(in millions)

				For the Six Months Ended
				March 31, 2006			April 1, 2005
Cash Flows From Operating Activities:
Net income				$	1,592		$	922
	Loss from discontinued operations				295			219
	Cumulative effect of accounting change				—			(21	)
Income from continuing operations					1,887			1,120
Adjustments to reconcile net cash provided by operating activities:
	Non-cash restructuring and asset impairment charges, net				3			(2	)
	(Gains) losses on divestitures				(38	)		13
	Depreciation and amortization				1,035			1,054
	Non-cash compensation expense				152			34
	Deferred income taxes				51			72
	Provision for losses on accounts receivable and inventory				92			126
	Loss on the retirement of debt				2			729
	Other non-cash items				24			23
	Changes in assets and liabilities, net of the effects of acquisitions and divestitures:
		Accounts receivable, net			(119	)		(585	)
		Inventories			(517	)		(319	)
		Accounts payable			114			140
		Accrued and other liabilities			(888	)		(31	)
		Other			(164	)		116
			Net cash provided by operating activities		1,634			2,490
			Net cash provided by (used in) discontinued operating activities		5			(60	)
Cash Flows From Investing Activities:
Capital expenditures					(729	)		(647	)
Proceeds from disposal of assets					17			52
Acquisition of businesses, net of cash acquired					(134	)		(10	)
Acquisition of customer accounts (ADT dealer program)					(169	)		(135	)
Purchase accounting and holdback liabilities					(86	)		(23	)
Divestiture of businesses, net of cash retained					960			182
Decrease (increase) in investments					62			(116	)
Decrease in restricted cash					31			3
Other					2			(4	)
			Net cash used in investing activities		(46	)		(698	)
			Net cash used in discontinued investing activities		(6	)		(19	)
Cash Flows From Financing Activities:
Net repayment of short-term debt					(1,214	)		(1,182	)
Repayment of long-term debt, including debt tenders					(13	)		(1,896	)
Proceeds from exercise of share options					129			118
Dividends paid					(402	)		(225	)
Repurchase of common shares by subsidiary					(811	)		—
Transfers to discontinued operations					(85	)		(179	)
Other					(15	)		(17	)
			Net cash used in financing activities		(2,411	)		(3,381	)
			Net cash provided by discontinued financing activities		10			98
Effect of currency translation on cash					6			48
Net decrease in cash and cash equivalents					(808	)		(1,522	)
Less: net increase in cash related to discontinued operations					(9	)		(19	)
Cash and cash equivalents at beginning of period					3,206			4,487
Cash and cash equivalents at end of period				$	2,389		$	2,946

See Notes to Consolidated Financial Statements.

3

TYCO INTERNATIONAL LTD.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (UNAUDITED)

For the Six Months Ended March 31, 2006 and April 1, 2005

(in millions)

		Number of Common Shares	Common Shares $0.20 Par Value		Share Premium		Contributed Surplus		Accumulated Earnings			Accumulated Other Comprehensive Income (Loss)			Total
Balance at September 30, 2004		2,010	$	402	$	8,315	$	15,319	$	5,740		$	516		$	30,292
Comprehensive income:
	Net income									922						922
	Currency translation												639			639
	Minimum pension liability												(21	)		(21	)
	Total comprehensive income															1,540
Dividends declared										(402	)					(402	)
Share options exercised, including tax benefit of $29		6		1		117		29								147
Compensation expense		2		1				36								37
Exchange of convertible debt due 2010		1						9								9
Reporting calendar alignment										26						26
Other						1										1
Balance at April 1, 2005		2,019	$	404	$	8,433	$	15,393	$	6,286		$	1,134		$	31,650

		Number of Common Shares		Common Shares $0.20 Par Value			Share Premium		Contributed Surplus			Accumulated Earnings			Accumulated Other Comprehensive Income (Loss)			Total
Balance at September 30, 2005		2,015		$	403		$	8,540	$	15,249		$	7,993		$	265		$	32,450
Comprehensive income:
	Net income												1,592						1,592
	Currency translation															(174	)	(174		)
	Total comprehensive income																		1,418
Dividends declared													(404	)					(404	)
Restricted share grants, net of forfeitures		4			1					(1	)								—
Share options exercised, including tax expense of $2		7			1			127		(2	)								126
Repurchase of common shares by subsidiary		(30	)		(6	)				(805	)								(811	)
Exchange of convertible debt due 2018		54			11					1,224									1,235
Compensation expense										152									152
Other										20									20
Balance at March 31, 2006		2,050		$	410		$	8,667	$	15,837		$	9,181		$	91		$	34,186

See Notes to Consolidated Financial Statements.

4

TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1.    Basis of Presentation and Summary of Significant Accounting Policies

Basis of Presentation—The unaudited Consolidated Financial Statements include the consolidated accounts of Tyco International Ltd., a company organized under the laws of Bermuda, 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 and in accordance with the instructions to Form 10-Q under the Securities Exchange Act of 1934, as amended, and do not include all of the information and note disclosures required by accounting principles generally accepted in the United States ("GAAP"). 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 30, 2005 (the "2005 Form 10-K").

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

        The income tax provision for the quarter and six months ended March 31, 2006 includes a $127 million favorable adjustment related to a correction to prior year tax reserves on legacy tax matters.

Change in Fiscal Year and Reporting Calendar Alignment—Effective October 1, 2004, Tyco changed its fiscal year end from a calendar fiscal year ending September 30 to a "52-53 week" year ending on the last Friday of September, such that each quarterly period will be 13 weeks in length. In addition, certain of the Company's subsidiaries had consistently closed their books up to one month prior to the Company's fiscal period end. These subsidiaries now report results for the same period as the reported results of the consolidated Company. The impact of this change was not material to the Consolidated Financial Statements. Net income for the transition period related to this change was $26 million and was reported within Shareholders' Equity during 2005. References to 2006 and 2005 are to Tyco's fiscal quarters ending March 31, 2006 and April 1, 2005, respectively, unless otherwise indicated.

Reclassifications—Certain prior period amounts have been reclassified to conform with the current period presentation.

Recently Adopted Accounting Pronouncement—Effective October 1, 2005, the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 123R, "Share-Based Payment," which requires compensation costs related to share-based transactions, including employee stock options, to be recognized in the financial statements based on fair value. SFAS No. 123R revises SFAS No. 123, as amended, "Accounting for Stock-Based Compensation," and supersedes Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees." Tyco adopted SFAS No. 123R using the modified prospective application transition method. Under this method, compensation cost is recognized for the unvested portion of share-based payments granted prior to October 1, 2005 and all share-based payments granted subsequent to September 30, 2005 over the related vesting period. Prior to the first quarter of 2006, the Company applied the intrinsic value based method prescribed in APB Opinion No. 25 in accounting for employee stock based compensation. Prior period results have not been restated. Due to the adoption of SFAS No. 123R, the Company's results for the three and six months ended March 31, 2006 include incremental share-based compensation expense totaling

5

$46 million and $94 million, respectively. As such, basic and diluted earnings per share were impacted by $0.02 and $0.03 for the three and six months ended March 31, 2006, respectively.

Recently Issued Accounting Pronouncements—In March 2005, the Financial Accounting Standards Board ("FASB") issued Interpretation ("FIN") No. 47, "Accounting for Conditional Asset Retirement Obligations—an interpretation of FASB Statement No. 143." This Interpretation clarifies the timing of liability recognition for legal obligations associated with an asset retirement when the timing and (or) method of settling the obligation are conditional on a future event that may or may not be within the control of the entity. FIN No. 47 is effective no later than the end of fiscal years ending after December 15, 2005. The Company is currently assessing the impact that FIN No. 47 will have on the results of its operations, financial position or cash flows.

        In June 2005, the FASB issued Staff Position ("FSP") No. 143-1, "Accounting for Electronic Equipment Waste Obligations," which provides guidance on accounting for historical waste obligations associated with the European Union Waste, Electrical and Electronic Equipment Directive ("WEEE Directive"). Under the directive, the waste management obligation for historical equipment (products put on the market on or prior to August 13, 2005) remains with the commercial user until the equipment is replaced, at which time the waste management obligation may be transferred to the producer of the replacement equipment. FSP No. 143-1 is effective for the first reporting period ending after June 8, 2005 or the date of the adoption of the WEEE Directive into law by the applicable European Union member country. As of the end of the second quarter of 2006, the Company continues to monitor and evaluate the effects that the adoption of FSP No. 143-1 will have on the results of operations and financial condition. Such effects will depend on the respective laws and regulations adopted by the EU member countries, their implementation guidance and the type of recycling programs and systems that are established.

2.    Restructuring and Asset Impairment Charges, Net

        During the six months ended March 31, 2006, the Company recorded net restructuring and asset impairment charges of $22 million, which includes $2 million reflected in cost of sales for the non-cash write down in carrying value of inventory. The remaining charge is comprised of net restructuring charges of $13 million and impairments of long-lived assets of $7 million. Restructuring charges during the six months ended March 31, 2006 were $27 million, which includes $21 million of severance and $6 million of facility exit and other charges. The Company completed restructuring activities announced in prior years for amounts less than originally anticipated and accordingly reversed $11 million of restructuring reserves. The Company also recorded other non-cash credits of $3 million. Most of the restructuring initiatives undertaken during 2006 relate to the Electronics and Fire and Security segments.

        During the six months ended April 1, 2005, the Company recorded net restructuring of $11 million. Restructuring charges during the six months ended April 1, 2005 were $25 million, which consisted of $14 million of severance, $5 million of facility exit charges and $6 million of other charges. The Company completed restructuring activities announced in prior years for amounts less than originally anticipated and accordingly reversed $9 million of restructuring reserves. The Company also recorded other net non-cash credits of $5 million.

6

Restructuring Reserves

        Restructuring reserves from September 30, 2005 to March 31, 2006 by the year in which the restructuring action was initiated are as follows ($ in millions):

	Year of Restructuring Action
	2006			2005			2004			2003 and Prior			Total
Balance at September 30, 2005	$	—		$	8		$	52		$	89		$	149
Charges		22			1			—			4			27
Reversals		—			(1	)		(3	)		(7	)		(11	)
Utilization		(6	)		(6	)		(12	)		(8	)		(32	)
Balance at March 31, 2006	$	16		$	2		$	37		$	78		$	133

        Restructuring reserves by segment are as follows ($ in millions):

	March 31, 2006		September 30, 2005
Electronics	$	86	$	91
Fire and Security		36		45
Healthcare		—		1
Engineered Products and Services		7		9
Corporate		4		3
	$	133	$	149

        At March 31, 2006, $55 million of restructuring reserves are included on the Consolidated Balance Sheets in accrued and other current liabilities and $78 million are included in other liabilities. At September 30, 2005, $58 million of restructuring reserves are included on the Consolidated Balance Sheets in accrued and other current liabilities and $91 million are included in other liabilities.

3.    Separation Transaction

        On January 13, 2006, the Company announced that its Board of Directors approved a plan to separate the Company into three separate, publicly traded companies—Tyco Healthcare, Tyco Electronics and a combination of Tyco Fire and Security and Engineered Products and Services (the "Proposed Separation"). The Company intends to accomplish the Proposed Separation through tax-free stock dividends to Tyco shareholders. Following the Proposed Separation, Tyco's shareholders will own 100% of the equity in all three companies. Tyco expects to complete the Proposed Separation during the first quarter of calendar 2007.

        In connection with the Proposed Separation, the Company estimates that the total costs to complete the transaction will approximate $1.0 billion, largely for tax restructuring and debt refinancing. During the six months ended March 31, 2006, the Company incurred $33 million of costs related to the Proposed Separation.

        Consummation of the Proposed Separation is subject to certain conditions, including final approval by the Tyco Board of Directors, receipt of a tax opinion of counsel, the filing and effectiveness of

7

registration statements with the Securities and Exchange Commission ("SEC") and the completion of any necessary debt refinancings. Approval by the Company's shareholders is not required as a condition to the consummation of the Proposed Separation.

4.    Discontinued Operations, Divestitures and Acquisitions

Discontinued Operations

        In May 2005, Tyco announced its intent to explore the divesture of its Plastics and Adhesives business segment, a global manufacturer of plastic film, specialty tapes and adhesives, coated products and garment hangers. At September 30, 2005, the Plastics and Adhesives segment met the held for sale criteria and was included in discontinued operations in all periods presented.

        During the first quarter of 2006, the Company assessed the recoverability of the carrying value for the Plastics and Adhesives businesses. Based on market conditions during the quarter and the terms and conditions included or expected to be included in the sale agreements, fair value estimates of the businesses were reassessed. As a result of these assessments, the Company recorded a pre-tax impairment charge of $275 million for the Plastics, Adhesives and Ludlow Coated Products Group and a $17 million pre-tax impairment charge for the A&E Products Group to write down the disposal groups to their fair values less costs to sell.

        During the second quarter of 2006, the Company closed the sale of the Plastics, Adhesives and Ludlow Coated Products businesses for $975 million in gross cash proceeds. Estimated working capital and other adjustments resulted in net proceeds of $907 million. Settlement of the final working capital adjustment is expected prior to year end. The Company recognized a pre-tax loss on sale of approximately $10 million, in addition to the $275 million pre-tax impairment charge recorded during the first quarter of 2006. The sales agreement also provides for a contingent future payment of up to $30 million to Tyco based on average resin prices in the future.

        Also, during the second quarter of 2006, the Company reassessed the recoverability of the carrying value for the A&E Products Group in conjunction with the terms and conditions included in the definitive sale agreement entered into during the quarter. As a result of this reassessment, the Company recorded an additional pre-tax impairment charge of $5 million to write the business down to its fair value less costs to sell. Tyco expects to complete the A&E Products Group sale transaction during 2006.

        During the six months ended April 1, 2005, the Company recorded a $202 million pre-tax goodwill and long-lived asset impairment charge in the A&E Products Group based on an interim assessment of the recoverability of both goodwill and long-lived assets. As a result of this assessment, the Company determined that the book value of certain long-lived assets in the A&E Products reporting unit was greater than their estimated fair value and consequently recorded a long-lived asset impairment charge of $40 million. The Company also determined that the book value of the A&E Products reporting unit was in excess of its estimated fair value which resulted in a goodwill impairment charge of $162 million.

        During the six months ended April 1, 2005, the Company divested six businesses that were reported as discontinued operations and reported pre-tax losses on sales of $80 million.

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

	For the Six Months Ended
	March 31, 2006			April 1, 2005
Net revenue	$	727		$	1,099
Income from discontinued operations, before income taxes		32			35
Loss on sale of discontinued operations, before income taxes		(307	)		(282	)
Income taxes		(20	)		28
Loss from discontinued operations, net of income taxes	$	(295	)	$	(219	)

Gain (losses) on divestitures

        During the six months ended March 31, 2006, the Company divested five businesses that were reported as continuing operations in Fire and Security, Healthcare and Electronics. The Company recorded net gains on divestitures of $45 million in connection with the divestiture of these businesses, less $7 million of divestiture charges related to the write-down to estimated fair value and costs to sell certain other held for sale businesses.

        During the six months ended April 1, 2005, the Company divested six businesses that were within the Fire and Security, Healthcare and Engineered Products and Services segments. The Company reported losses and impairments on divestitures to write the carrying value of such assets down to their estimated fair value, less costs to sell, of $20 million, including $3 million reflected in cost of sales.

Businesses Held for Sale

        Balance sheet information for discontinued operations and other businesses held for sale is as follows ($ in millions):

		March 31, 2006		September 30, 2005
Accounts receivable, net		$	30	$	225
Inventories			21		184
Other current assets			9		19
Long-lived assets including goodwill, property, plant and equipment and intangibles, net			12		854
Other non-current assets			1		8
	Total assets	$	73	$	1,290
Accounts payable		$	15	$	94
Accrued and other current liabilities			39		122
Other liabilities			1		3
	Total liabilities	$	55	$	219

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Acquisitions

        During the six months ended March 31, 2006, Tyco's Healthcare segment acquired over 90% ownership in Floreane Medical Implants, S.A. ("Floreane") for approximately $122 million in cash, net of cash acquired of $3 million. Floreane is an innovator in the development of surgical support implants for parietal, urological and gynecological surgery. Additional outstanding shares are expected to be acquired during the remainder of 2006. Cash paid for other acquisitions totaled $12 million.

        During the six months ended April 1, 2005, the Company completed three acquisitions for an aggregate cost of $10 million.

        The results of operations of the acquired companies have been included in the consolidated results from the respective acquisition dates. These acquisitions did not have a material effect on the Company's financial position, results of operations or cash flows.

        At March 31, 2006, $44 million of acquisition liabilities remained on the Consolidated Balance Sheets, of which $12 million are included in accrued and other current liabilities and $32 million are included in other liabilities. These acquisition liabilities relate to facility exit costs, employee severance and benefits, distributor and supplier cancellation fees and other costs. At September 30, 2005, $70 million of acquisition liabilities remained on the Consolidated Balance Sheets, of which $24 million are included in accrued and other current liabilities and $46 million are included in other liabilities.

        During the six months ended March 31, 2006 and April 1, 2005, the Company paid $86 million and $23 million, respectively, relating to purchase accounting and holdback liabilities related to certain prior period acquisitions. Holdback liabilities represent a portion of the purchase price that is withheld from the seller pending finalization of the acquisition balance sheet and other contingencies. At March 31, 2006, holdback liabilities on our Consolidated Balance Sheets were $77 million, of which $16 million are included in accrued and other current liabilities and $61 million are included in other liabilities. At September 30, 2005, holdback liabilities on our Consolidated Balance Sheets were $148 million, of which $79 million are included in accrued and other current liabilities and $69 million are included in other liabilities.

5.    Cumulative Effect of Accounting Change

        During 2005, the Company changed the measurement date for its pension and postretirement benefit plans, from September 30^th to August 31^st, effective October 1, 2004. The Company believes that the one-month change of measurement date was a preferable change as it allows management adequate time to evaluate and report the actuarial information in the Company's Consolidated Financial Statements under the accelerated reporting deadlines. As a result of this change, the Company recorded a $21 million after-tax gain ($28 million pre-tax) cumulative effect adjustment in the six months ended April 1, 2005.

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6.    Earnings Per Share

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

		Quarter Ended March 31, 2006					Quarter Ended April 1, 2005
		Income		Shares	Per Share		Income		Shares	Per Share
Basic earnings per share:
	Income from continuing operations	$	1,080	2,019	$	0.54	$	399	2,010	$	0.20
	Share options, restricted share awards and deferred stock units		—	14				—	20
	Exchange of convertible debt		10	74				21	152
Diluted earnings per share:
	Income from continuing operations, giving effect to dilutive adjustments	$	1,090	2,107	$	0.52	$	420	2,182	$	0.19

		Six Months Ended March 31, 2006					Six Months Ended April 1, 2005
		Income		Shares	Per Share		Income		Shares	Per Share
Basic earnings per share:
	Income from continuing operations	$	1,887	2,011	$	0.94	$	1,120	2,009	$	0.56
	Share options, restricted share awards and deferred stock units		—	16				—	19
	Exchange of convertible debt		22	82				45	166
Diluted earnings per share:
	Income from continuing operations, giving effect to dilutive adjustments	$	1,909	2,109	$	0.91	$	1,165	2,194	$	0.53

        The computation of diluted earnings per common share for the quarter and six months ended March 31, 2006 excludes the effect of the potential exercise of options to purchase approximately 91 million shares for both periods because the effect would be anti-dilutive.

        The computation of diluted earnings per common share for the quarter and six months ended April 1, 2005 excludes the effect of the potential exercise of options to purchase approximately 73 million shares for both periods because the effect would be anti-dilutive.

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7.    Goodwill and Intangible Assets

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

	Electronics			Fire and Security			Healthcare			Engineered Products and Services			Total
Balance at September 30, 2005	$	7,395		$	8,032		$	5,973		$	3,157		$	24,557
Purchase accounting adjustments		—			(6	)		(12	)		2			(16	)
Acquisitions and divestitures		1			(3	)		44			—			42
Currency translation		(6	)		(20	)		3			(22	)		(45	)
Balance at March 31, 2006	$	7,390		$	8,003		$	6,008		$	3,137		$	24,538

        The gross carrying amount and accumulated amortization of the Company's intangible assets are as follows ($ in millions):

		March 31, 2006					September 30, 2005
		Gross Carrying Amount		Accumulated Amortization		Weighted Average Amortization Period	Gross Carrying Amount		Accumulated Amortization		Weighted Average Amortization Period
Amortizable:
	Contracts and related customer relationships	$	5,140	$	2,859	12 years	$	4,974	$	2,638	12 years
	Intellectual property		2,988		1,073	21 years		2,921		992	20 years
	Other		206		68	27 years		211		70	27 years
	Total	$	8,334	$	4,000	16 years	$	8,106	$	3,700	16 years
Non-Amortizable:
	Intellectual property	$	652				$	652
	Other		32					27
	Total	$	684				$	679

        Intangible asset amortization for the quarters ended March 31, 2006 and April 1, 2005 was $164 million and $163 million, respectively. Intangible asset amortization for each of the six months ended March 31, 2006 and April 1, 2005 was $326 million. The estimated aggregate amortization expense on intangible assets currently owned by the Company is expected to be approximately $300 million for the remainder of 2006, $550 million for 2007, $500 million for 2008, $450 million for 2009, $400 million for 2010, and $300 million for 2011.

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8.    Debt

        Debt was as follows ($ in millions):

	March 31, 2006		September 30, 2005
6.375% public notes due 2006(2)	$	—	$	1,000
5.8% public notes due 2006(1)(2)		700		700
6.125% Euro denominated public notes due 2007		721		721
6.5% notes due 2007		100		100
2.75% convertible senior debentures due 2018 with a 2008 put option		—		1,242
6.125% public notes due 2008		399		399
7.2% notes due 2008		85		85
5.5% Euro denominated notes due 2008		823		823
6.125% public notes due 2009		399		399
6.75% public notes due 2011		999		999
6.375% public notes due 2011		1,500		1,500
6.5% British Pound denominated public notes due 2011		346		353
6.0% notes due 2013		997		996
7.0% debentures due 2013		86		86
3.125% convertible senior debentures due 2023 with a 2015 put option		750		750
7.0% public notes due 2028		497		497
6.875% public notes due 2029		790		790
6.5% British Pound denominated public notes due 2031		492		502
Other(1)(2)		304		612
Total debt		9,988		12,554
Less current portion		746		1,954
Long-term debt	$	9,242	$	10,600

⁽¹⁾

These instruments, plus $46 million of the amount shown as other, comprise the current portion of long-term debt as of March 31, 2006.

⁽²⁾

These instruments, plus $254 million of the amount shown as other, comprise the current portion of long-term debt as of September 30, 2005.

        Tyco International Group S.A., a wholly-owned subsidiary of the Company organized under the laws of Luxembourg ("TIGSA"), holds a $1.0 billion 5-year revolving credit facility expiring on December 16, 2009. TIGSA also holds a $1.5 billion 3-year revolving bank credit facility expiring on December 22, 2006 and a $500 million 3-year unsecured letter of credit facility expiring on June 15, 2007. At March 31, 2006, letters of credit of $475 million have been issued under the $500 million facility and $25 million remains available for issuance. There were no amounts borrowed under the credit facilities at March 31, 2006.

        On January 26, 2006, the Company repaid and terminated one of its synthetic lease facilities used to finance capital expenditures for manufacturing machinery and equipment for a total cash payment of $226 million, reducing principal debt and minority interest by $214 million and $10 million, respectively.

        On February 21, 2006, TIGSA delivered a notice of redemption to the holders of its Series A 2.75% convertible senior debentures due 2018 with a 2008 put option (the "2.75% convertible senior

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debentures"), exercising its right to redeem all such debentures at 101.1 percent of the principal amount outstanding plus accrued interest.

        The 2.75% convertible senior debentures were convertible into 43.892 Tyco common shares per $1,000 principal amount. Prior to March 8, 2006, the redemption date, $1.2 billion of the 2.75% convertible senior debentures were converted into 54.4 million Tyco common shares and on March 8, 2006, TIGSA redeemed the remaining $1 million principal amount outstanding with cash.

        During the six months ended March 31, 2006, the Company utilized $1.0 billion in cash for scheduled repayments of public notes.

9.    Commitments and Contingencies

        At March 31, 2006, the Company had a contingent purchase price liability of $80 million related to the 2001 acquisition of Com-Net by Electronics. This represents the maximum amount payable to the former shareholders of Com-Net only after the construction and installation of a communications system for the State of Florida is finished and the State has approved the system based on the guidelines set forth in the contract. A liability for this contingency has not been recorded in Tyco's Consolidated Financial Statements as the outcome of this contingency cannot be reasonably determined.

        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.

Class Actions

        As a result of actions taken by the Company's former senior corporate management, Tyco, some members of the Company's former senior corporate management, former members of our Board of Directors and the Company's current Chief Executive Officer are named defendants in a number of purported class actions alleging violations of the disclosure provisions of the federal securities laws. Tyco, certain of the Company's current and former employees, some members of the Company's former senior corporate management and some former members of the Company's Board of Directors also are named as defendants in several Employee Retirement Income Security Act ("ERISA") class actions. In addition, some members of the Company's former senior corporate management are subject to a SEC inquiry. The findings and outcomes of the SEC inquiry may affect the course of the purported securities class actions and ERISA class actions pending against Tyco. The Company is generally obligated to indemnify its directors and officers and its former directors and officers who are named as defendants in some or all of these matters to the extent required by Bermuda law. In addition, the Company's insurance carriers may decline coverage, or the Company's coverage may be insufficient to cover its expenses and liability, in some or all of these matters. The Company is unable at this time to estimate what its ultimate liability in these matters may be, and it is possible that the Company will be required to pay judgments or settlements and incur expenses, in excess of any insurance coverage, in aggregate amounts that would have a material adverse effect on its financial position, results of operations or cash flows. At this time, it is not possible to estimate the amount of loss or probable losses, if any, that might result from an adverse resolution of these matters.

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Investigations

        The Company and others have received various subpoenas and requests from the SEC's Division of Enforcement, the United States Department of Labor, the General Service Administration and others seeking the production of voluminous documents in connection with various investigations into the Company's governance, management, operations, accounting and related controls. The Department of Labor is investigating Tyco and the administrators of certain of its benefit plans. The Company cannot predict when these investigations will be completed, nor can the Company predict what the results of these investigations may be. It is possible that the Company will be required to pay material fines, consent to injunctions on future conduct, lose the ability to conduct business with government instrumentalities (which in turn could negatively impact the Company's business with non-governmental customers) or suffer other penalties, each of which could have a material adverse effect on the Company's business. It is not possible to estimate the amount of loss, or range of possible loss, if any, that might result from an adverse resolution of these matters.

        On April 17, 2006, the Company reached a settlement that closes the SEC Enforcement Division's investigation of certain accounting practices and other actions by former Tyco officers. As expected, the Company has been ordered to make a payment of $50 million. In 2005, the Company recorded a charge of $50 million, which represented the Company's best estimate of the amount in fines and penalties management believes the Company will likely pay to resolve these matters.

Intellectual Property and Antitrust Litigation

        As previously disclosed in our periodic filings, the Company is party to a number of patent infringement and antitrust actions that may require the Company to pay damage awards. Tyco has assessed the status of these matters and has recorded liabilities related to certain of these matters where appropriate.

Mallinckrodt, Inc. ("Mallinckrodt") and Nellcor Puritan Bennett, Inc. ("Nellcor"), plaintiffs/counter-defendants v. Masimo Corporation ("Masimo") et al., defendants/counter-claimants, is a consolidated patent infringement action filed on June 19, 2000 in the United States District Court for the Central District of California.

        On January 17, 2006, Tyco International Ltd., and its subsidiaries Tyco International (US) Inc., Tyco Healthcare Group LP, Mallinckrodt, Inc., and Nellcor Puritan Bennett, Inc. (collectively "Nellcor") entered into a Settlement Agreement and Release of Claims with Masimo Corporation and Masimo Laboratories, Inc. (the "Settlement") related to the consolidated patent infringement action.

        Under the terms of the settlement, Tyco on behalf of Nellcor, paid Masimo a total of $330 million on January 19, 2006, which represents $265 million in damages in the patent case for sales through January 31, 2006 (after which the infringing products will no longer be sold) and $65 million as an advance royalty for oximetry sales including Nellcor's new 06 technology products from February 1, 2006 through December 31, 2006. Under the terms of the Settlement, Nellcor received from Masimo a covenant not to sue on the Nellcor 06 products as well as a termination of all pending patent litigation with Masimo. In March 2011, Nellcor has the option to terminate Masimo's covenant not to sue and the obligation to pay future royalties on Nellcor's current products as well as any next-generation products. In addition, Nellcor will discontinue making, offering to sell, selling or shipping any products that the court found infringed on the patents held by Masimo, but will continue to provide service and

15

sensors for the previously sold products. Tyco had previously recorded a liability of $277 million related to this matter. The Settlement does not resolve the Masimo antitrust lawsuit or the related consumer antitrust class lawsuits described below.

Masimo Corporation v. Tyco Healthcare Group LP ("Tyco Healthcare") and Mallinckrodt, Inc. is a separate lawsuit filed on May 22, 2002 also pending in the United States District Court for the Central District of California. Tyco Healthcare and Mallinckrodt are subsidiaries of Tyco. In this lawsuit, Masimo alleges violations of antitrust laws against Tyco Healthcare and Mallinckrodt in the markets for pulse oximeter products. Masimo alleges that Tyco Healthcare and Mallinckrodt used their market position to prevent hospitals from purchasing Masimo's pulse oximetry products. Masimo seeks injunctive relief and monetary damages, including treble damages. Trial in this case began on February 22, 2005. The jury returned its verdict on March 21, 2005, and awarded Masimo $140 million in damages. The damages are automatically trebled under the antitrust statute to an award of $420 million. If ultimately successful, Masimo's attorneys are entitled to an award of reasonable fees and costs in addition to the verdict amount. The district court held a hearing on June 28, 2005 regarding post-trial motions.

        On March 22, 2006, the district court issued its Memorandum of Decision regarding the post-trial motions. In the Memorandum, the district court (i) vacated the jury's liability findings on two business practices; (ii) affirmed the jury's liability finding on two other business practices; (iii) vacated the jury's damage award in its entirety, and (iv) ordered a new trial on damages. The district court has not scheduled the new trial on the damages.

        Tyco has assessed the status of this matter and has concluded that it is more likely than not that the remainder of the jury's decision will be overturned, and, further, Tyco intends to vigorously pursue all available means to achieve such reversal. Accordingly, no provision has been made in the Consolidated Financial Statements with respect to this damage award.

        Beginning on August 29, 2005 with Natchitoches Parish Hospital Service District v. Tyco International, Ltd., twelve consumer class actions have been filed against Nellcor in the United States District Court for the Central District of California. The remaining eleven actions are Allied Orthopedic Appliances, Inc. v. Tyco Healthcare Group, LP., and Mallinckrodt Inc. filed on August 29, 2005, Scott Valley Respiratory Home Care v. Tyco Healthcare Group LP, and Mallinckrodt Inc. filed on October 27, 2005, Brooks Memorial Hospital et al v. Tyco Healthcare Group LP filed on October 18, 2005, All Star Oxygen Services, Inc. et al v. Tyco Healthcare Group, et al filed on October 25, 2005, Niagara Falls Memorial Medical Center, et al v. Tyco Healthcare Group LP filed on October 28, 2005, Nicholas H. Noyes Memorial Hospital v. Tyco Healthcare and Mallinckrodt filed on November 4, 2005, North Bay Hospital, Inc. v. Tyco Healthcare Group, et al filed on November 15, 2005, Stephen Skoronski v. Tyco International Ltd, et al filed on November 21, 2005, Abington Memorial Hospital v. Tyco Int'l Ltd,; Tyco Int'l (US) Inc.; Mallinckrodt Inc.; Tyco Healthcare Group LP filed on November 22, 2005, South Jersey Hospital, Inc. v. Tyco International, Ltd., et al, filed on January 24, 2006, and Deborah Heart and Lung Center v. Tyco International, Ltd., et al, filed on January 27, 2006. In all twelve complaints, the putative class representatives, on behalf of themselves and others, seek to recover overcharges they allege they paid for pulse oximetry products as a result of anticompetitive conduct by Nellcor in violation of the federal antitrust laws. At this time, it is not possible to estimate the amount of loss or probable losses, if any, that might result from an adverse resolution of these matters. The Company will respond to these complaints and intends to vigorously defend the actions.

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        As previously reported in the Company's periodic filings, Applied Medical Resources Corp. ("Applied Medical") v. United States Surgical ("U.S. Surgical") is a patent infringement action that was filed in the United States District Court for the Central District of California in April 1999 in which U.S. Surgical, a subsidiary of Tyco, is the defendant. In February 2002, the district court held that U.S. Surgical's VERSASEAL universal seal system, contained in certain surgical trocar and access devices manufactured by U.S. Surgical, infringed certain of the plaintiff's patents. The district court entered a permanent injunction against U.S. Surgical based upon infringement of one of the three patents involved in the suit. The United States Court of Appeals for the Federal Circuit affirmed the district court's permanent injunction ruling in September 2003 for the VERSASEAL product, which is no longer on the market. In October 2003, the district court ruled in U.S. Surgical's favor, holding that two other patents involved in the case were invalid. A trial on damages for the earlier infringement ruling in the district court concluded on July 27, 2004. The jury awarded Applied Medical $44 million in damages and returned a finding that the earlier infringement was willful, giving the district court discretion to enhance those damages to up to treble the damages awarded to Applied Medical by the jury. On October 1, 2004, the district court issued post-trial rulings that (i) denied U.S. Surgical's motion to set aside the jury's finding on willfulness; and (ii) granted Applied Medical's motion for enhanced damages, enhancing the jury's damages award by 25%, or $11 million. On January 27, 2005, the district court awarded Applied Medical $10 million in costs, prejudgment interest and attorneys' fees. Thus, Applied Medical's total award is $65 million. U.S. Surgical appealed the damages award and the willfulness finding to the Court of Appeals for the Federal Circuit. On January 24, 2006, the Court of Appeals issued a decision affirming the award to Applied Medical. On February 17, 2006, Tyco, on behalf of U.S. Surgical, paid Applied Medical $66 million which includes post-judgment interest which accrued during the appeal. Tyco previously recorded a liability of $66 million related to this matter.

        On July 31, 2003, Applied Medical filed another patent infringement suit against U.S. Surgical in the United States District Court for the Central District of California. The complaint alleges that U.S. Surgical's VERSASEAL Plus trocar product infringes Applied Medical's U.S. Patent No. 5,385,533. Applied Medical seeks injunctive relief and unspecified monetary damages, including enhanced damages for alleged willful infringement. Applied Medical filed a motion for a preliminary injunction, which the district court denied on December 23, 2003. On February 7, 2005, the district court granted U.S. Surgical's motion for summary judgment. Applied Medical is appealing the summary judgment ruling. Briefing on Applied Medical's appeal has concluded and oral argument took place on February 6, 2006.

Environmental Matters

        Tyco is involved in various stages of investigation and cleanup related to environmental remediation matters at a number of sites. The ultimate cost of site cleanup is difficult to predict given the uncertainties regarding the extent of the required cleanup, the interpretation of applicable laws and regulations and alternative cleanup methods. As of March 31, 2006, Tyco concluded that it was probable that it would incur remedial costs in the range of approximately $138 million to $421 million. As of March 31, 2006, Tyco concluded that the best estimate within this range is approximately $204 million, of which $32 million is included in accrued and other current liabilities and $172 million is included in other liabilities on our Consolidated Balance Sheets. In view of the Company's financial position and reserves for environmental matters of $204 million, the Company believes that any

17

potential payment of such estimated amounts will not have a material adverse effect on its financial position, results of operations or cash flows.

        Tyco has recorded asset retirement obligations for the estimated future costs associated with legal obligations to decommission two nuclear facilities. As of March 31, 2006 and September 30, 2005, the Company's asset retirement obligations were $72 million and $69 million, respectively. The Company believes that any potential payment of such estimated amounts will not have a material adverse effect on its financial position, results of operations or cash flows.

Asbestos Matters

        Tyco and some of its subsidiaries are named as defendants in personal injury lawsuits based on alleged exposure to asbestos-containing materials. Consistent with the national trend of increased asbestos-related litigation, the Company has observed an increase in the number of these lawsuits in the past several years. The majority of these cases have been filed against subsidiaries in Healthcare and Engineered Products and Services. A limited number of the cases allege premises liability, based on claims that individuals were exposed to asbestos while on a subsidiary's property. A majority of the cases involve product liability claims, based principally on allegations of past distribution of heat-resistant industrial products incorporating asbestos or the past distribution of industrial valves that incorporated asbestos-containing gaskets or packing. Each case typically names between dozens to hundreds of corporate defendants.

        Tyco's involvement in asbestos cases has been limited because its subsidiaries did not mine or produce asbestos. Furthermore, in the Company's experience, a large percentage of these claims were never substantiated and have been dismissed by the courts. The Company will continue to vigorously defend these lawsuits and the Company has not suffered an adverse verdict in a trial court proceeding related to asbestos claims. When appropriate, the Company settles claims. However, the total amount paid to date to settle and defend all asbestos claims has been immaterial. As of March 31, 2006, there were approximately 14,500 asbestos liability cases pending against the Company and its subsidiaries.

        During 2005, the Company undertook a detailed study of its pending asbestos claims and also developed an estimate of asbestos claims that were incurred but not reported, as well as related insurance and indemnification recoveries. The impact of this study was not material to the Company's financial position, results of operations or cash flows. The Company's estimate of the liability for pending and future claims is based on claim experience over the past five years and covers claims expected to be filed through the year 2012. The Company believes that it has adequate amounts recorded related to these matters. While it is not possible at this time to determine with certainty the ultimate outcome of these asbestos-related proceedings, the Company believes that the final outcome of all known and anticipated future claims, after taking into account its substantial indemnification rights and insurance coverage, will not have a material adverse effect on the Company's financial position, results of operations or cash flows.

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Income Taxes

        The Company and its subsidiaries' income tax returns are periodically examined by various regulatory tax authorities. In connection with such examinations, tax authorities, including the United States Internal Revenue Service ("IRS"), have raised issues and proposed tax adjustments. The Company is reviewing and contesting certain of the proposed tax adjustments. Amounts related to these tax adjustments and other tax contingencies that management has assessed as probable and estimable have been recorded through the income tax provision, equity or goodwill, as appropriate.

        The American Jobs Creation Act of 2004 (the "AJCA"), signed into law in October 2004, replaces an export incentive with a deduction from domestic manufacturing income. This provision of the AJCA did not have a material impact on the financial condition, results of operations or cash flows of the Company. The AJCA also allows the Company to repatriate up to $500 million of permanently reinvested foreign earnings in 2006 at an effective tax rate of 5.25%. This incentive would apply to the Company's U.S. owned controlled foreign companies. The Company continues to review whether to take advantage of this provision of the AJCA.

Compliance Matters

        In 2003, an allegation was brought to our attention that during the period from 1999 through 2003 certain improper payments were made by a non-U.S. subsidiary of Tyco. During 2005, Tyco reported to the U.S. Department of Justice ("DOJ") and the SEC the investigative steps and remedial measures that it has taken in response to the allegations. Tyco also informed the DOJ and the SEC that it has retained outside counsel to perform a company-wide baseline review of its policies, controls and practices with respect to compliance with the Foreign Corrupt Practices Act, that it would continue to make periodic progress reports to them and that it would present its factual findings upon conclusion of the baseline review. On March 15, 2006, the Company held a meeting with the DOJ and SEC to provide an update on the baseline review being conducted by outside counsel and provided a briefing concerning additional instances of potential improper payments identified by the Company in the course of its ongoing compliance activities.

        At this time, Tyco cannot predict the outcome of these matters reported to regulatory and law enforcement authorities and therefore cannot estimate the range of potential loss or extent of risk, if any, that may result from an adverse resolution of any or all of these matters.

Other Matters

Earth Tech v. City of Phoenix is a contract dispute arising from Earth Tech's contract with the City of Phoenix, Arizona for expansion of the City's 91st Avenue Waste Water Treatment Plant. On December 21, 2005, Earth Tech filed a lawsuit against the City of Phoenix in the Maricopa County Superior Court alleging $3 million in damages plus interest for the City's failure to pay dewatering and computer systems costs related to the 91st Avenue project. After the City rejected Earth Tech's administrative claim against the City, Earth Tech filed and served a First Amended Complaint upon the City of Phoenix. In its First Amended Complaint, Earth Tech alleged eighteen causes of action and requested the following: (i) a recovery of at least $73 million for the value of the services performed by Earth Tech in connection with the contract; (ii) a rescission of the contract; (iii) an equitable adjustment of the Contract price for additional dewatering services and the Computer Control System;

19

and (iv) costs for demobilization and termination of the contract. The City of Phoenix's Answer to the First Amended Complaint is due on May 18, 2006.

        On December 29, 2005, the City of Phoenix filed a lawsuit against Earth Tech, Inc., its surety, Federal Insurance Company and other unnamed parties in the Maricopa County Superior Court, The City of Phoenix v. Earth Tech, Inc., Federal Insurance Company and John Does 1-50. The lawsuit is in connection with the City of Phoenix's termination on August 12, 2005 of Earth Tech's contract with the City of Phoenix, Arizona for expansion of the City's 91st Avenue Waste Water Treatment Plant. The City alleges the following causes of action: (i) Earth Tech breached its Pre-Construction Services and Construction Management at Risk Contracts; (ii) Earth Tech did not properly, reasonably or timely manage, supervise or inspect the work under the Contracts; (iii) Federal Insurance breached the terms and conditions of the performance bond; and (iv) Federal Insurance failed to investigate the City's Bond Claims. The City requested unspecified general, consequential, incidental, special and liquidated damages plus interest as its relief. On February 8, 2006, Earth Tech filed a Motion to Dismiss the City's Complaint in which Federal Insurance Company joined. The Court set a hearing date for the motions of May 22, 2006.

        The Company is a defendant in a number of other pending legal proceedings incidental to present and former operations, acquisitions and dispositions. The Company does not expect the outcome of these proceedings, either individually or in the aggregate, to have a material adverse effect on its financial position, results of operations or cash flows.

10.    Retirement Plans

        The net periodic benefit cost for all U.S. and non-U.S. defined benefit pension plans was as follows ($ in millions):

		U.S. Plans
		For the Quarters Ended						For the Six Months Ended
		March 31, 2006			April 1, 2005			March 31, 2006			April 1, 2005
Service cost		$	6		$	5		$	12		$	11
Interest cost			32			32			63			64
Expected return on plan assets			(41	)		(38	)		(82	)		(77	)
Amortization of prior service cost			1			1			2			2
Amortization of net actuarial loss			12			10			25			20
	Net periodic benefit cost	$	10		$	10		$	20		$	20

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		Non-U.S. Plans
		For the Quarters Ended						For the Six Months Ended
		March 31, 2006			April 1, 2005			March 31, 2006			April 1, 2005
Service cost		$	29		$	26		$	58		$	52
Interest cost			34			34			68			68
Expected return on plan assets			(31	)		(27	)		(62	)		(54	)
Amortization of prior service benefit			—			—			(1	)		—
Amortization of net actuarial loss			13			11			26			22
	Net periodic benefit cost	$	45		$	44		$	89		$	88

        As previously discussed in the 2005 Form 10-K, the Company anticipates that it will contribute at least the minimum amount required to its pension plans in 2006 of $12 million for U.S plans and $107 million for non-U.S. plans. During the six months ended March 31, 2006, the Company has contributed $61 million to its U.S. and non-U.S. pension plans.

        During the six months ended April 1, 2005, the Company completed the merger of certain pension plans in the United Kingdom. As a result of merging certain plans, the company increased its minimum pension liability with a corresponding reduction of accumulated other comprehensive income of $21 million (net of income taxes).

        Net periodic postretirement benefit cost was as follows ($ in millions):

		For the Quarters Ended						For the Six Months Ended
		March 31, 2006			April 1, 2005			March 31, 2006			April 1, 2005
Service cost		$	1		$	—		$	2		$	1
Interest cost			4			5			8			10
Amortization of prior service benefit			(1	)		(1	)		(2	)		(2	)
Amortization of net actuarial loss			—			2			—			3
	Net periodic postretirement benefit cost	$	4		$	6		$	8		$	12

11.    Share Plans

        Effective October 1, 2005, the Company adopted the provisions of SFAS No. 123R using the modified prospective transition method. Under this transition method, the compensation cost recognized beginning October 1, 2005 includes compensation cost for (i) all share-based payments granted prior to, but not yet vested as of October 1, 2005, based on the grant-date fair value estimated in accordance with the original provisions of SFAS No. 123, and (ii) all share-based payments granted subsequent to September 30, 2005 based on the grant-date fair value estimated in accordance with the provisions of SFAS No. 123R. Compensation cost is generally recognized ratably over the requisite service period or period to retirement eligibility, if shorter. Prior period amounts have not been restated.

        As a result of the adoption of SFAS No. 123R, the Company's results for the quarter and six months ended March 31, 2006 include incremental share-based compensation expense of $46 million

21

and $94 million, respectively. The total share-based compensation cost of $77 million and $152 million for the quarter and six months ended March 31, 2006, respectively, has been included in the Consolidated Statements of Income within selling, general and administrative expenses. For the quarter and six months ended March 31, 2006, the Company has recognized a related tax benefit associated with its share-based compensation arrangements totaling $19 million and $35 million, respectively.

        Prior to October 1, 2005, the Company accounted for stock-based compensation plans in accordance with the provisions of APB Opinion No. 25, as permitted by SFAS No. 123, and accordingly did not recognize compensation expense for the issuance of options with an exercise price equal to or greater than the market price of the stock at the date of grant. Had the fair value based method as prescribed by SFAS No. 123 been applied by Tyco, the effect on net income and earnings per share for the quarter and six months ended April 1, 2005 would have been as follows ($ in millions, except per share data):

		Quarter Ended			Six Months Ended
		April 1, 2005			April 1, 2005
Net income, as reported		$	192		$	922
Add: Employee compensation expense for share options included in reported net income, net of income taxes			1			7
Less: Total employee compensation expense for share options determined under fair value method, net of income taxes			(35	)		(83	)
Net income, pro forma		$	158		$	846
Earnings per share:
	Basic—as reported	$	0.10		$	0.46
	Basic—pro forma		0.08			0.42
	Diluted—as reported		0.10			0.44
	Diluted—pro forma		0.08			0.41

        During 2004, the Tyco International Ltd. 2004 Stock and Incentive Plan (the "2004 Plan") effectively replaced the Tyco International Ltd. Long Term Incentive Plan, as amended as of May 12, 1999 (the "LTIP I Plan"), the Tyco International Long Term Incentive Plan II (the "LTIP II Plan"), as well as the Tyco International Ltd. 1994 Restricted Stock Ownership Plan for Key Employees (the "1994 Plan") for all awards effective on or after March 25, 2004. The 2004 Plan provides for the award of stock options, stock appreciation rights, annual performance bonuses, long term performance awards, restricted units, restricted stock, deferred stock units, promissory stock and other stock-based awards (collectively, "Awards").

        The 2004 Plan provides for a maximum of 160 million common shares to be issued as Awards, subject to adjustment as provided under the terms of the 2004 Plan. In addition, any common shares that have been approved by the Company's shareholders for issuance under the LTIP Plans but which have not been awarded thereunder as of January 1, 2004, reduced by the number of common shares related to Awards made under the LTIP Plans between January 1, 2004 and March 25, 2004, the date the 2004 Plan was approved by shareholders, (or which have been awarded but will not be issued, owing to expiration, forfeiture, cancellation, return to the Company or settlement in cash in lieu of common shares on or after January 1, 2004) and which are no longer available for any reason

22

(including the termination of the LTIP Plans) will also be available for issuance under the 2004 Plan. When common shares are issued pursuant to a grant of restricted stock and restricted units (collectively, "restricted share awards"), deferred stock units, promissory stock, and performance units or as payment of an annual performance bonus or other stock-based award, the total number of common shares remaining available for grant will be decreased by a margin of at least 1.8 per common share issued. At March 31, 2006, there were approximately 166 million shares available for future grant under the 2004 Plan (including shares available under both the LTIP I and LTIP II Plans that are now assumable under the 2004 Plan).

        The 1994 Plan provided for the issuance of restricted share grants to officers and non-officer employees. The 1994 plan expired in November 2004; thus no additional grants of restricted stock have been made under this plan since November 2004 and no shares are available for future grant. At March 31, 2006, 29 million restricted shares had been granted, of which 13 million were granted under the 2004 Plan and 16 million were granted under the 1994 Plan.

        The LTIP I Plan reserved common shares for issuance to Tyco's directors, executives and managers as share options. This plan is administered by the Compensation and Human Resources Committee of the Board of Directors of the Company, which consists exclusively of independent directors of the Company. Tyco had reserved 140 million common shares for issuance under the LTIP I Plan. At March 31, 2006, there were approximately 29 million shares originally reserved for issuance under this plan that are now available for future grant under the 2004 Plan.

        The LTIP II Plan was a broad-based option plan for non-officer employees. Tyco had reserved 100 million common shares for issuance under the LTIP II Plan. The terms and conditions of this plan are similar to the LTIP I Plan. At March 31, 2006, there were approximately 32 million shares originally reserved for issuance under this plan that are now available for future grant under the 2004 Plan.

Employee Stock Purchase Plans—Substantially all full-time employees of the Company's U.S. subsidiaries and employees of certain qualified non-U.S. subsidiaries are eligible to participate in an employee share purchase plan. Eligible employees authorize payroll deductions to be made for the purchase of shares. The Company matches a portion of the employee contribution by contributing an additional 15% of the employee's payroll deduction. All shares purchased under the plan are purchased on the open market by a designated broker.

        The Company also maintains two other employee stock purchase plans for the benefit of employees of certain qualified non-U.S. subsidiaries. Under one plan, eligible employees are granted options to purchase shares at the end of three years of service at 85% of the market price at the time of grant. As of March 31, 2006, there were approximately 3 million options outstanding and 7 million shares available for future issuance under this plan. All shares purchased under the other plan are purchased on the open market.

Share Options—Options are granted to purchase common shares at prices which are equal to or greater than the market price of the common shares on the date the option is granted. Conditions of vesting are determined at the time of grant under the 2004 Plan. Options are generally exercisable in equal annual installments over a period of three years and will generally expire 10 years after the date of grant. Options assumed as part of business combination transactions are administered under Tyco's plans but do not reduce the available shares and retain all the rights, terms and conditions of the respective plans under which they were originally issued.

        At March 31, 2006, 401 million share options had been granted, of which 230 million, 124 million and 47 million were granted under the LTIP I, LTIP II and 2004 Plans, respectively.

23

        The grant-date fair value of each option grant is estimated using the Black-Scholes option pricing model. The fair value is then amortized on a straight-line basis over the requisite service periods of the awards, which is generally the vesting period. Use of a valuation model requires management to make certain assumptions with respect to selected model inputs. Expected volatility was calculated based on the historical volatility of the Company's stock and implied volatility derived from exchange traded options. The average expected life was based on the contractual term of the option and expected employee exercise and post-vesting employment termination behavior. The risk-free interest rate is based on U.S. Treasury zero-coupon issues with a remaining term equal to the expected life assumed at the date of grant. Forfeitures are estimated based on voluntary termination behavior, as well as an analysis of actual option forfeitures. The weighted-average assumptions used in the Black-Scholes option pricing model are as follows:

	For the Quarters Ended
	March 31, 2006			April 1, 2005
Expected stock price volatility		33	%		33	%
Risk free interest rate		4.3	%		4.1	%
Expected life of options (years)		4.6			4.6
Expected annual dividend per share	$	0.40		$	0.40

	For the Six Months Ended
	March 31, 2006			April 1, 2005
Expected stock price volatility		34	%		35	%
Risk free interest rate		4.2	%		3.9	%
Expected life of options (years)		4.4			4.2
Expected annual dividend per share	$	0.40		$	0.40

        The weighted-average grant-date fair values of options granted during the quarter and six months ended March 31, 2006 was $8.23 and $9.00, respectively. The weighted average grant-date fair values of options granted during the quarter and six months ended April 1, 2005 was $11.06 in both periods. The total intrinsic value of options exercised during the quarter and six months ended March 31, 2006 was $32 million and $64 million, respectively. The total intrinsic value of options exercised during the quarter and six months ended April 1, 2005 was $58 million and $84 million, respectively. The excess cash tax benefit classified as a financing cash inflow for the six months ended March 31, 2006 was not significant.

24

        A summary of option activity as of March 31, 2006 and changes during the six months then ended is presented below:

	Shares		Weighted- Average Exercise Price		Weighted-Average Remaining Contractual Term (in years)	Aggregate Intrinsic Value (in millions)
Outstanding at October 1, 2005	140,502,534		$	32.80
Granted	10,693,227			29.02
Exercised	(6,895,425	)		18.57
Expired	(8,944,982	)		43.79
Forfeited	(2,882,226	)		32.20
Outstanding at March 31, 2006	132,473,128			32.50	6.1	$	397
Vested and unvested expected to vest at March 31, 2006	130,783,323			32.51	6.1		397
Exercisable at March 31, 2006	103,545,415			33.11	5.4		365

        As of March 31, 2006, there was $237 million of total unrecognized compensation cost related to non-vested share options granted. The cost is expected to be recognized over a weighted-average period of 1.4 fiscal years.

Restricted Share Awards—Restricted share awards are granted subject to certain restrictions. Conditions of vesting are determined at the time of grant under the 2004 Plan. Tyco's restricted share awards generally cliff vest after three years. All restrictions on the award will lapse upon normal retirement, death or disability of the employee.

        For grants which vest based on certain specified performance criteria, the fair market value of the shares or units is expensed over the period of performance, once achievement of criteria is deemed probable. For grants that vest through passage of time, the fair market value of the award at the time of the grant is amortized to expense over the period of vesting. Recipients of restricted shares have the right to vote such shares and receive dividends, whereas recipients of restricted units have no voting rights and receive dividend equivalents. The fair value of restricted share awards is determined based on the number of shares granted and the market value of the Company's shares on the grant date. During the six months ended March 31, 2006, the Company granted one million performance-based restricted share awards at a fair value of $29.00, on the grant date. Such shares generally vest over a period of three years, as determined by the Compensation Committee, upon attainment of various levels of performance that equal or exceed targeted levels.

25

        The compensation expense recognized for all restricted share awards is net of estimated forfeitures. A summary of the status of the Company's restricted share awards as of March 31, 2006 and changes during the six months then ended are presented below:

Nonvested Restricted Share Awards	Shares		Weighted-Average Grant-Date Fair Value
Nonvested at October 1, 2005	7,348,292		$	28.54
Granted	6,205,873			28.93
Vested	(766,372	)		17.23
Forfeited	(709,781	)		28.11
Nonvested at March 31, 2006	12,078,012			29.48

        The weighted-average grant-date fair value of shares granted during the quarter and six months ended April 1, 2005 was $35.77 and $35.62, respectively. As of March 31, 2006, there was $240 million of total unrecognized compensation cost related to non-vested restricted share awards. That cost is expected to be recognized over a weighted-average period of 2.3 fiscal years.

Deferred Stock Units—Deferred Stock Units ("DSUs") are notional units that are correlated to the value of Tyco common shares with distribution deferred until termination of employment. Distribution, when made, will be in the form of actual shares. Similar to restricted share grants that vest through the passage of time, the fair market value of the DSUs at the time of the grant is amortized to expense over the vesting period. Recipients of DSUs do not have the right to vote such shares and do not have the right to receive cash dividends. However, they have the right to receive notional dividends in the form of additional DSUs. Conditions of vesting are determined at the time of grant. Under the 2004 Plan, the majority of Tyco's DSU grants vest in equal annual installments over three years. The Company has granted 2 million DSUs, of which all but 0.1 million were outstanding at March 31, 2006.

12.    Consolidated Segment Data

        The segment data presented have been reclassified to exclude the results of discontinued operations. In addition, the results of the Tyco Global Network ("TGN") business, which was sold in the third quarter of 2005, are presented within Corporate for the quarter and six months ended

26

April 1, 2005. Selected information by business segment is presented in the following tables ($ in millions):

			For the Quarters Ended						For the Six Months Ended
			March 31, 2006			April 1, 2005			March 31, 2006			April 1, 2005
Net revenue:
	Electronics		$	3,236		$	3,133		$	6,258		$	6,012
	Fire and Security			2,873			2,874			5,666			5,756
	Healthcare			2,409			2,369			4,696			4,688
	Engineered Products and Services			1,688			1,607			3,292			3,120
	Corporate(1)			—			10			—			18
		Net revenue	$	10,206		$	9,993		$	19,912		$	19,594
Operating income:
	Electronics		$	461		$	496		$	845		$	910
	Fire and Security			289			311			517			594
	Healthcare			579			689			1,118			1,270
	Engineered Products and Services			192			165			361			337
	Corporate(2)			(113	)		(136	)		(208	)		(216	)
		Operating income	$	1,408		$	1,525		$	2,633		$	2,895

⁽¹⁾

Net revenue for the quarter and six months ended April 1, 2005 relates to the TGN business.

⁽²⁾

The quarter and six months ended April 1, 2005 includes the TGN operating loss of $21 million and $42 million, respectively.

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13.    Supplementary Balance Sheet and Cash Flow Information

        Selected supplementary balance sheet information was as follows ($ in millions):

		March 31, 2006			September 30, 2005
Purchased materials and manufactured parts		$	1,104		$	1,039
Work in process			1,066			967
Finished goods			2,470			2,191
	Inventories	$	4,640		$	4,197
Land		$	524		$	526
Buildings			3,178			3,177
Subscriber systems			4,786			4,745
Machinery and equipment			10,037			9,955
Construction in progress			964			826
Accumulated depreciation			(10,327	)		(9,991	)
	Property, plant and equipment, net	$	9,162		$	9,238
Accrued expenses		$	3,592		$	4,351
Other current liabilities			2,321			2,201
	Accrued and other current liabilities	$	5,913		$	6,552
Long-term pension and post-retirement liabilities		$	1,767		$	1,704
Other long-term liabilities			5,951			6,016
	Other liabilities	$	7,718		$	7,720

        Supplementary non-cash financing activities were as follows ($ in millions):

	For the Six Months Ended
	March 31, 2006		April 1, 2005
Conversion of debt to common shares	$	1,235	$	9

14.    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 2006 through the completion of such transactions. The guarantees would be triggered in the event of nonperformance and the potential exposure for nonperformance under the guarantees would not have a material effect on the Company's financial position, results of operations or cash flows.

        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 does not have the ability to estimate

28

the potential liability from such indemnities because they relate to unknown conditions. However, 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 9 for a discussion of these liabilities.

        The Company has an off-balance sheet leasing arrangement for five cable laying sea vessels. Upon expiration of this lease in October 2006, a subsidiary of the Company has the option to buy these vessels for approximately $280 million, or return the vessels to the lessor and, under a residual guarantee, pay any shortfall in sales proceeds to the lessor from a third party in an amount not to exceed $235 million. As of March 31, 2006, the Company expects this obligation to be $54 million, which is recorded in the accompanying Consolidated Balance Sheet, based on an estimate of the fair value of the vessels performed by management with the assistance of a third-party valuation.

        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. Manufactured products are warranted against defects in material and workmanship when properly used for their intended purpose, installed correctly, and appropriately maintained. Generally, product warranties are implicit in the sale; however, the customer may purchase an extended warranty. Manufactured equipment is also warranted in the same manner as product warranties. However, in most instances the warranty is either negotiated in the contract or sold as a separate component. Warranty period terms range from 90 days (e.g., consumable products) up to 20 years (e.g., power system batteries). The warranty liability is determined based on historical information such as past experience, product failure rates or number of units repaired, estimated cost of material and labor, and in certain instances estimated property damage.

        The following table reflects the roll forward of the Company's warranty accrual for the quarter and six months ended March 31, 2006 ($ in millions).

	For the Quarter Ended March 31, 2006			For the Six Months Ended March 31, 2006
Balance at beginning of period	$	177		$	193
Accruals for warranties issued during the period		12			27
Changes in estimates related to pre-existing warranties		—			(7	)
Settlements made		(23	)		(46	)
Currency translation		1			—
Balance at March 31, 2006	$	167		$	167

        Settlements during the quarter and six months ended March 31, 2006 include spending of $10 million and $21 million, respectively, by Engineered Products and Services in connection with a Voluntary Replacement Program ("VRP") associated with the acquisition of Central Sprinkler. The VRP was initiated in 2001 and relates to the replacement of certain Model GB fire sprinkler heads

29

which were originally manufactured by Central Sprinkler. Identification and investigation of problems with the sprinkler heads commenced prior to Tyco's acquisition. The sprinkler heads are to be replaced over a 5–7 year period free of charge to property owners. The Company is assessing the future of this program, which may necessitate adjustment to the warranty reserve.

15.    Tyco International Group S.A.

        Tyco International Group S.A., a wholly-owned subsidiary of the Company organized under the laws of Luxembourg ("TIGSA") has public debt securities outstanding which are fully and unconditionally guaranteed by Tyco. The following tables present condensed consolidating financial information for Tyco, TIGSA and all other subsidiaries. Condensed financial information for Tyco International Ltd. and TIGSA on a stand-alone basis is presented using the equity method of accounting for subsidiaries.

        During the fourth quarter of 2005, TIGSA completed a tax-free restructuring involving the issuance of multiple classes of shares and the distribution of certain investments, intercompany loans and intercompany receivables to Tyco International Ltd. Since the transactions were entirely among wholly owned subsidiaries of Tyco there was no impact on the consolidated statements of financial position, operations or cash flows of the Company. The transactions did, however, result in a decrease to TIGSA's investment in subsidiaries and intercompany receivables of a combined $18.4 billion. The effect of these transactions has been reflected below as if they occurred at the beginning of the earliest period presented.

30

CONDENSED CONSOLIDATING STATEMENT OF INCOME
For the Quarter Ended March 31, 2006
(in millions)

		Tyco International Ltd.			Tyco International Group S.A.			Other Subsidiaries			Consolidating Adjustments			Total
Net revenue		$	—		$	—		$	10,206		$	—		$	10,206
Cost of product sales			—			—			5,583			—			5,583
Cost of services			—			—			1,202			—			1,202
Selling, general and administrative expenses			14			25			1,982			—			2,021
Restructuring and asset impairment charges, net			—			—			8			—			8
Separation costs			9			—			16			—			25
Gains on divestitures			—			—			(41	)		—			(41	)
	Operating (loss) income		(23	)		(25	)		1,456			—			1,408
Interest income			1			10			22			—			33
Interest expense			—			(164	)		(25	)		—			(189	)
Other expense, net			—			—			(2	)		—			(2	)
Equity in net income of subsidiaries			1,380			1,000			—			(2,380	)		—
Intercompany interest and fees			(336	)		155			181			—			—
	Income from continuing operations before income taxes and minority interest		1,022			976			1,632			(2,380	)		1,250
Income taxes			—			—			(168	)		—			(168	)
Minority interest			—			—			(2	)		—			(2	)
	Income from continuing operations		1,022			976			1,462			(2,380	)		1,080
Loss from discontinued operations, net of income taxes			—			—			(58	)		—			(58	)
	Income before cumulative effect of accounting change		1,022			976			1,404			(2,380	)		1,022
Cumulative effect of accounting change, net of income taxes			—			—			—			—			—
	Net income	$	1,022		$	976		$	1,404		$	(2,380	)	$	1,022

31

CONDENSED CONSOLIDATING STATEMENT OF INCOME
For the Quarter Ended April 1, 2005
(in millions)

		Tyco International Ltd.			Tyco International Group S.A.			Other Subsidiaries			Consolidating Adjustments			Total
Net revenue		$	—		$	—		$	9,993		$	—		$	9,993
Cost of product sales			—			—			5,329			—			5,329
Cost of services			—			—			1,173			—			1,173
Selling, general and administrative expenses			54			(1	)		1,907			—			1,960
Restructuring and asset impairment charges, net			—			—			4			—			4
Separation costs			—			—			—			—			—
Losses on divestitures			—			—			2			—			2
	Operating (loss) income		(54	)		1			1,578			—			1,525
Interest income			—			7			24			—			31
Interest expense			—			(188	)		(20	)		—			(208	)
Other expense, net			—			(573	)		(2	)		—			(575	)
Equity in net income of subsidiaries			582			162			—			(744	)		—
Intercompany interest and fees			(336	)		719			(383	)		—			—
	Income from continuing operations before income taxes and minority interest		192			128			1,197			(744	)		773
Income taxes			—			—			(373	)		—			(373	)
Minority interest			—			—			(1	)		—			(1	)
	Income from continuing operations		192			128			823			(744	)		399
Loss from discontinued operations, net of income taxes			—			—			(207	)		—			(207	)
	Income before cumulative effect of accounting change		192			128			616			(744	)		192
Cumulative effect of accounting change, net of income taxes			—			—			—			—			—
	Net income	$	192		$	128		$	616		$	(744	)	$	192

32

CONDENSED CONSOLIDATING STATEMENT OF INCOME
For the Six Months Ended March 31, 2006
(in millions)

		Tyco International Ltd.			Tyco International Group S.A.			Other Subsidiaries			Consolidating Adjustments			Total
Net revenue		$	—		$	—		$	19,912		$	—		$	19,912
Cost of product sales			—			—			10,873			—			10,873
Cost of services			—			—			2,383			—			2,383
Selling, general and administrative expenses			23			84			3,901			—			4,008
Restructuring and asset impairment charges, net			—			—			20			—			20
Separation costs			9			—			24			—			33
Gains on divestitures			—			—			(38	)		—			(38	)
	Operating (loss) income		(32	)		(84	)		2,749			—			2,633
Interest income			1			17			52			—			70
Interest expense			—			(334	)		(44	)		—			(378	)
Other expense, net			—			—			(3	)		—			(3	)
Equity in net income of subsidiaries			2,313			1,581			—			(3,894	)		—
Intercompany interest and fees			(690	)		318			372			—			—
	Income from continuing operations before income taxes and minority interest		1,592			1,498			3,126			(3,894	)		2,322
Income taxes			—			—			(430	)		—			(430	)
Minority interest			—			—			(5	)		—			(5	)
	Income from continuing operations		1,592			1,498			2,691			(3,894	)		1,887
Loss from discontinued operations, net of income taxes			—			—			(295	)		—			(295	)
	Income before cumulative effect of accounting change		1,592			1,498			2,396			(3,894	)		1,592
Cumulative effect of accounting change, net of income taxes			—			—			—			—			—
	Net income	$	1,592		$	1,498		$	2,396		$	(3,894	)	$	1,592

33

CONDENSED CONSOLIDATING STATEMENT OF INCOME
For the Six Months Ended April 1, 2005
(in millions)

		Tyco International Ltd.			Tyco International Group S.A.			Other Subsidiaries			Consolidating Adjustments			Total
Net revenue		$	—		$	—		$	19,594		$	—		$	19,594
Cost of product sales			—			—			10,352			—			10,352
Cost of services			—			—			2,394			—			2,394
Selling, general and administrative expenses			82			1			3,842			—			3,925
Restructuring and asset impairment charges, net			—			—			11			—			11
Separation costs			—			—			—			—			—
Losses on divestitures			—			—			17			—			17
	Operating (loss) income		(82	)		(1	)		2,978			—			2,895
Interest income			—			16			52			—			68
Interest expense			—			(381	)		(43	)		—			(424	)
Other expense, net			—			(729	)		(7	)		—			(736	)
Equity in net income of subsidiaries			1,657			709			—			(2,366	)		—
Intercompany interest and fees			(653	)		1,095			(442	)		—			—
	Income from continuing operations before income taxes and minority interest		922			709			2,538			(2,366	)		1,803
Income taxes			—			—			(679	)		—			(679	)
Minority interest			—			—			(4	)		—			(4	)
	Income from continuing operations		922			709			1,855			(2,366	)		1,120
Loss from discontinued operations, net of income taxes			—			—			(219	)		—			(219	)
	Income before cumulative effect of accounting change		922			709			1,636			(2,366	)		901
Cumulative effect of accounting change, net of income taxes			—			—			21			—			21
	Net income	$	922		$	709		$	1,657		$	(2,366	)	$	922

34

CONDENSED CONSOLIDATING BALANCE SHEET
March 31, 2006
(in millions)

			Tyco International Ltd.		Tyco International Group S.A.		Other Subsidiaries			Consolidating Adjustments			Total
Assets
Current Assets:
	Cash and cash equivalents		$	1	$	1,203	$	1,185		$	—		$	2,389
	Accounts receivable, net			—		—		6,822			—			6,822
	Inventories			—		—		4,640			—			4,640
	Intercompany receivables			2,333		67		12,533			(14,933	)		—
	Other current assets			30		4		3,239			—			3,273
	Assets held for sale			—		—		73			—			73
		Total current assets		2,364		1,274		28,492			(14,933	)		17,197
Property, plant and equipment, net				—		—		9,162			—			9,162
Goodwill				—		—		24,538			—			24,538
Intangible assets, net				—		—		5,018			—			5,018
Investment in subsidiaries				59,162		31,751		—			(90,913	)		—
Intercompany loans receivable				—		20,994		28,012			(49,006	)		—
Other assets				25		116		5,000			—			5,141
		Total Assets	$	61,551	$	54,135	$	100,222		$	(154,852	)	$	61,056
Liabilities and Shareholders' Equity
Current Liabilities:
	Current maturities of long-term debt		$	—	$	700	$	46		$	—		$	746
	Accounts payable			4		—		3,144			—			3,148
	Accrued and other current liabilities			263		284		5,366			—			5,913
	Intercompany payables			8,412		4,121		2,400			(14,933	)		—
	Liabilities held for sale			—		—		55			—			55
		Total current liabilities		8,679		5,105		11,011			(14,933	)		9,862
Long-term debt				1		8,654		587			—			9,242
Intercompany loans payable				18,615		9,397		20,994			(49,006	)		—
Other liabilities				70		77		7,571			—			7,718
		Total Liabilities		27,365		23,233		40,163			(63,939	)		26,822
Minority interest				—		—		48			—			48
Shareholders' Equity:
	Preference Shares			—		—		13,070			(13,070	)		—
	Common shares			418		1		(8	)		(1	)		410
	Other shareholders' equity			33,768		30,901		46,949			(77,842	)		33,776
		Total Shareholders' Equity		34,186		30,902		60,011			(90,913	)		34,186
		Total Liabilities and Shareholders' Equity	$	61,551	$	54,135	$	100,222		$	(154,852	)	$	61,056

35

CONDENSED CONSOLIDATING BALANCE SHEET
September 30, 2005
(in millions)

			Tyco International Ltd.		Tyco International Group S.A.		Other Subsidiaries			Consolidating Adjustments			Total
Assets
Current Assets:
	Cash and cash equivalents		$	3	$	1,204	$	1,999		$	—		$	3,206
	Accounts receivable, net			—		—		6,732			—			6,732
	Inventories			—		—		4,197			—			4,197
	Intercompany receivables			1,847		37		11,382			(13,266	)		—
	Other current assets			21		103		2,966			—			3,090
	Assets held for sale			—		—		1,290			—			1,290
		Total current assets		1,871		1,344		28,566			(13,266	)		18,515
Property, plant and equipment, net				—		—		9,238			—			9,238
Goodwill				—		—		24,557			—			24,557
Intangible assets, net				—		—		5,085			—			5,085
Investment in subsidiaries				57,798		30,410		—			(88,208	)		—
Intercompany loans receivable				—		21,577		27,254			(48,831	)		—
Other assets				24		164		5,038			—			5,226
		Total Assets	$	59,693	$	53,495	$	99,738		$	(150,305	)	$	62,621
Liabilities and Shareholders' Equity
Current Liabilities:
	Current maturities of long-term debt		$	2	$	1,700	$	252		$	—		$	1,954
	Accounts payable			9		—		3,056			—			3,065
	Accrued and other current liabilities			279		367		5,906			—			6,552
	Intercompany payables			8,271		3,111		1,884			(13,266	)		—
	Liabilities held for sale			—		—		219			—			219
		Total current liabilities		8,561		5,178		11,317			(13,266	)		11,790
Long-term debt				—		10,008		592			—			10,600
Intercompany loans payable				18,615		8,639		21,577			(48,831	)		—
Other liabilities				67		8		7,645			—			7,720
		Total Liabilities		27,243		23,833		41,131			(62,097	)		30,110
Minority interest				—		—		61			—			61
Shareholders' Equity:
	Preference shares			—		—		13,070			(13,070	)		—
	Common shares			405		1		(2	)		(1	)		403
	Other shareholders' equity			32,045		29,661		45,478			(75,137	)		32,047
		Total Shareholders' Equity		32,450		29,662		58,546			(88,208	)		32,450
		Total Liabilities and Shareholders' Equity	$	59,693	$	53,495	$	99,738		$	(150,305	)	$	62,621

36

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
For the Six Months Ended March 31, 2006
(in millions)

		Tyco International Ltd.			Tyco International Group S.A.			Other Subsidiaries			Consolidating Adjustments			Total
Cash Flows From Operating Activities:
	Net cash provided by (used in) operating activities	$	300		$	(411	)	$	1,745		$	—		$	1,634
	Net cash provided by discontinued operating activities		—			—			5			—			5
Cash Flows From Investing Activities:
Capital expenditures			—			—			(729	)		—			(729	)
Proceeds from disposal of assets			—			—			17			—			17
Acquisition of businesses, net of cash acquired			—			—			(134	)		—			(134	)
Acquisition of customer accounts (ADT dealer program)			—			—			(169	)		—			(169	)
Purchase accounting and holdback liabilities			—			—			(86	)		—			(86	)
Divestiture of businesses, net of cash retained			—			—			960			—			960
Decrease in intercompany loans			—			1,312			—			(1,312	)		—
Decrease (increase) in investments			—			99			(37	)		—			62
Decrease in restricted cash			—			—			31			—			31
Other			—			—			2			—			2
	Net cash provided by (used in) investing activities		—			1,411			(145	)		(1,312	)		(46	)
	Net cash used in discontinued investing activities		—			—			(6	)		—			(6	)
Cash Flows From Financing Activities:
Net repayments of debt			(1	)		(1,001	)		(225	)		—			(1,227	)
Proceeds from exercise of share options			101			—			28			—			129
Dividends paid			(402	)		—			—			—			(402	)
Repurchase of common shares by subsidiary			—			—			(811	)		—			(811	)
Loan repayments to parent			—			—			(1,312	)		1,312			—
Transfer to discontinued operations			—			—			(85	)		—			(85	)
Other			—			—			(15	)		—			(15	)
	Net cash used in financing activities		(302	)		(1,001	)		(2,420	)		1,312			(2,411	)
	Net cash provided by discontinued financing activities		—			—			10			—			10
Effect of currency translation on cash			—			—			6			—			6
Net decrease in cash and cash equivalents			(2	)		(1	)		(805	)		—			(808	)
Less: net increase in cash related to discontinued operations			—			—			(9	)		—			(9	)
Cash and cash equivalents at beginning of period			3			1,204			1,999			—			3,206
Cash and cash equivalents at end of period		$	1		$	1,203		$	1,185		$	—		$	2,389

37

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
For the Six Months Ended April 1, 2005
(in millions)

		Tyco International Ltd.			Tyco International Group S.A.			Other Subsidiaries			Consolidating Adjustments			Total
Cash Flows From Operating Activities:
	Net cash provided by operating activities	$	223		$	1,269		$	998		$	—		$	2,490
	Net cash used in discontinued operating activities		—			—			(60	)		—			(60	)
Cash Flows From Investing Activities:
Capital expenditures			—			—			(647	)		—			(647	)
Proceeds from disposal of assets			—			—			52			—			52
Acquisition of businesses, net of cash acquired			—			—			(10	)		—			(10	)
Acquisition of customer accounts (ADT dealer program)			—			—			(135	)		—			(135	)
Purchase accounting and holdback liabilities.			—			—			(23	)		—			(23	)
Divestiture of businesses, net of cash retained			—			—			182			—			182
Decrease in intercompany loans			—			499			—			(499	)		—
Increase in investments			—			—			(116	)		—			(116	)
Decrease in restricted cash			—			—			3			—			3
Other			—			—			(4	)		—			(4	)
	Net cash provided by (used in) investing activities		—			499			(698	)		(499	)		(698	)
	Net cash used in discontinued investing activities		—			—			(19	)		—			(19	)
Cash Flows From Financing Activities:
Net repayments of debt			—			(2,948	)		(130	)		—			(3,078	)
Proceeds from exercise of share options			—			—			118			—			118
Dividends paid			(225	)		—			—			—			(225	)
Loan repayments to parent			—			—			(499	)		499			—
Transfer to discontinued operations			—			—			(179	)		—			(179	)
Other			1			(2	)		(16	)		—			(17	)
	Net cash used in financing activities		(224	)		(2,950	)		(706	)		499			(3,381	)
	Net cash provided by discontinued financing activities		—			—			98			—			98
Effect of currency translation on cash			—			—			48			—			48
Net decrease in cash and cash equivalents			(1	)		(1,182	)		(339	)		—			(1,522	)
Less: net increase in cash related to discontinued operations			—			—			(19	)		—			(19	)
Cash and cash equivalents at beginning of period			1			2,452			2,034			—			4,487
Cash and cash equivalents at end of period		$	—		$	1,270		$	1,676		$	—		$	2,946

16.    Subsequent Events

       In April, with the additional purchase of 14.5 million shares for $391 million, Tyco completed its previously announced $1.5 billion share repurchase program. In May 2006, Tyco's Board of Directors approved a new $2.0 billion share repurchase program.

38

Item 2.    Management's Discussion and Analysis of Financial Condition and Results of Operations

Results of Operations

        The following discussion and analysis of the Company's financial condition and results of operations should be read together with our Consolidated Financial Statements and the accompanying notes included in this Quarterly Report. This discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. The Company's actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors, including but not limited to those under the headings "Risk Factors" and "Forward-Looking Information."

Introduction

        The unaudited Consolidated Financial Statements include the consolidated accounts of Tyco International Ltd., a company organized under the laws of Bermuda, and its subsidiaries (hereinafter collectively referred to as "we," the "Company" or "Tyco") and have been prepared in United States Dollars, in accordance with accounting principles generally accepted in the United States ("GAAP").

        The Company operates in the following business segments:

•

Electronics designs, manufactures and distributes electrical and electronic components.



•

Fire and Security designs, manufactures, installs, monitors and services electronic security and fire protection systems.



•

Healthcare designs, manufactures and distributes medical devices and supplies, imaging agents, pharmaceuticals and adult incontinence and infant care products.



•

Engineered Products and Services designs, manufactures, distributes and services engineered products, including industrial valves and controls, as well as steel tubular goods, and provides consulting, engineering and construction management and operating services.

        For the quarter and six months ended April 1, 2005, the results of the Tyco Global Network ("TGN") business, which was sold in the third quarter of 2005, are presented within Corporate.

Overview

        As previously reported in our periodic filings, on January 13, 2006, the Company announced that its Board of Directors approved a plan to separate the Company into three separate, publicly traded companies—Tyco Healthcare, one of the world's leading diversified healthcare companies; Tyco Electronics, the world's largest passive electronic components manufacturer; and a combination of Tyco Fire and Security and Engineered Products and Services, a global business with leading positions in residential and commercial security, fire protection, and industrial products and services (the "Proposed Separation"). After thorough reviews of strategic options with our Board of Directors, we believe that this strategy is the best way to position our market-leading companies for sustained growth and value creation.

        Following the Proposed Separation, Tyco's shareholders will own 100% of the equity in all three companies through tax-free stock dividends. Each company will have its own independent Board of Directors and strong corporate governance standards. Tyco expects to complete the Proposed Separation during the first quarter of calendar 2007.

39

        Consummation of the Proposed Separation is subject to certain conditions, including final approval by the Tyco Board of Directors, receipt of a tax opinion of counsel and the filing and effectiveness of registration statements with the Securities and Exchange Commission ("SEC") and the completion of any necessary debt refinancings. Approval by the Company's shareholders is not required as a condition to the consummation of the Proposed Separation.

        As we prepare for the Proposed Separation, we remain committed to returning capital to shareholders. During the first six months of 2006, we repurchased 30.0 million of our common shares for $809 million, which followed $300 million in share repurchases during 2005. In April 2006, we completed the $1.5 billion share repurchase program previously approved by the Board of Directors with the additional purchase of 14.5 million shares for $391 million. The Board of Directors has approved a new $2.0 billion share purchase program. We will continue to use excess cash to repurchase shares over the balance of the year. Also, following the Proposed Separation, we expect that all three companies will be dividend-paying companies. We are also focused on growing profitability within each of these companies before and after the Proposed Separation, so that each may be well positioned for long-term growth as independent entities.

        On February 16, 2006, we completed the sale of our Plastics, Adhesives and Ludlow Coated Products businesses, previously announced in 2005, for $975 million in gross cash proceeds. Estimated working capital and other adjustments resulted in net proceeds of $907 million. Settlement of the final working capital adjustment is expected prior to year end. As such, the operations of Plastics and Adhesives are reflected as discontinued operations in the accompanying consolidated financial statements up to the date of disposal. Details related to the Company's divestiture program and the related discontinued operations are discussed in "Discontinued Operations and Divestitures."

        On February 21, 2006, TIGSA delivered a notice of redemption to the holders of its Series A 2.75% convertible senior debentures due 2018 with a 2008 put option (the "2.75% convertible senior debentures"), exercising its right to redeem all such debentures at 101.1 percent of the principal amount outstanding plus accrued interest. The 2.75% convertible senior debentures were convertible into 43.892 Tyco common shares per $1,000 principal amount. Prior to March 8, 2006, the redemption date, $1.2 billion of the 2.75% convertible senior debentures were converted into 54.4 million Tyco common shares and on March 8, 2006, TIGSA redeemed the remaining $1 million principal amount outstanding with cash.

        During the three months ended March 31, 2006, we also repaid and terminated one of our synthetic lease facilities for a total cash payment of $226 million, reducing principal debt and minority interest by $214 million and $10 million, respectively.

        Additionally, during the three months ended March 31, 2006, we utilized $1.0 billion in cash for scheduled repayments of public notes.

        During the three months ended March 31, 2006, the United States Internal Revenue Service ("IRS") continued to audit the years 1997 through 2000. In 2004, the Company submitted to the IRS proposed adjustments to its 1997 through 2000 U.S. federal income tax returns. During the three months ended March 31, 2006, the IRS and the Company agreed to several of the proposed adjustments and also agreed to resolution of certain legacy tax matters. These adjustments did not have a material impact on the financial condition, results of operations or cash flows of the Company.

        The Company is in the process of preparing proposed amendments to prior period U.S. federal income tax returns for additional periods. The proposed amendments are not expected to have a material adverse impact on the financial condition, results of operations or cash flows of the Company.

40

Operating Results

        Net revenue and net income for the quarters and six months ended March 31, 2006 and April 1, 2005 was as follows ($ in millions):

	For the Quarters Ended						For the Six Months Ended
	March 31, 2006			April 1, 2005			March 31, 2006			April 1, 2005
Revenue from product sales	$	8,262		$	8,065		$	16,049		$	15,719
Service revenue		1,944			1,928			3,863			3,875
Net revenue	$	10,206		$	9,993		$	19,912		$	19,594
Operating income	$	1,408		$	1,525		$	2,633		$	2,895
Interest income		33			31			70			68
Interest expense		(189	)		(208	)		(378	)		(424	)
Other expense, net		(2	)		(575	)		(3	)		(736	)
Income from continuing operations before income taxes and minority interest		1,250			773			2,322			1,803
Income taxes		(168	)		(373	)		(430	)		(679	)
Minority interest		(2	)		(1	)		(5	)		(4	)
Income from continuing operations		1,080			399			1,887			1,120
Loss from discontinued operations, net of income taxes		(58	)		(207	)		(295	)		(219	)
Income before cumulative effect of accounting change		1,022			192			1,592			901
Cumulative effect of accounting change, net of income taxes		—			—			—			21
Net income	$	1,022		$	192		$	1,592		$	922

        Net revenue increased $213 million, or 2.1%, for the second quarter and $318 million, or 1.6%, for the first six months of 2006 as compared to the same periods last year. Foreign currency exchange rates unfavorably affected the second quarter by $254 million and the impact on the first half of 2006 remained unfavorable by $481 million. The net impact of acquisitions and divestitures negatively impacted each period by $33 million and $106 million, respectively.

        Operating income decreased $117 million, or 7.7%, for the second quarter while operating margin also decreased 1.5 percentage points to 13.8%. Operating income decreased $262 million, or 9.1%, for the first six months of 2006 while operating margins decreased 1.6 percentage points to 13.2%. Foreign currency exchange negatively impacted operating income by $44 million and $80 million for the second quarter and first six months of 2006, respectively. The second quarter and six month period were also negatively impacted by incremental stock option charges required under Statement of Financial Accounting Standards ("SFAS") No. 123R of $46 million and $94 million, respectively, and separation costs of $25 million and $33 million, respectively. During the second quarter and six months ended 2006, we recorded net gains on divestitures of $41 million and $38 million, respectively, primarily relating to the sale of a business within Healthcare compared to net losses on divestitures of $2 million and $17 million for the second quarter and first six months of 2005, respectively.

        We continued to utilize cash to strengthen the balance sheet, as well as return capital to shareholders. During the first six months of 2006, we reduced our debt balance to $10.0 billion by exchanging approximately $1.2 billion of convertible debt for 54.4 million common shares and retiring an additional $1.2 billion of debt with cash. Additionally, we used $809 million to repurchase 30.0 million shares of common stock and paid $402 million to shareholders in the form of dividends.

Segment Results:

        The segment discussions that follow describe the significant factors contributing to the changes in results for each segment included in continuing operations.

41

Quarter Ended March 31, 2006 Compared to Quarter Ended April 1, 2005

Electronics

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

	For the Quarters Ended
	March 31, 2006			April 1, 2005
Revenue from product sales	$	3,182		$	3,100
Service revenue		54			33
Net revenue	$	3,236		$	3,133
Operating income	$	461		$	496
Operating margin		14.2	%		15.8	%

        Net revenue for Electronics increased $103 million in the quarter ended March 31, 2006 over the quarter ended April 1, 2005. The increase in net revenue reflects volume growth which was broad based across customer-end markets, especially communications, consumer electronics, industrial machinery, power utilities and premise wiring end markets. Unfavorable changes in foreign currency exchange rates impacted net revenue by $108 million.

        Operating income and operating margin for the quarter ended March 31, 2006 decreased as compared to the same period in the prior year due primarily to increased material costs of approximately $56 million and $18 million related to the unfavorable impact of foreign currency. Additionally, the current quarter includes a $13 million charge for stock option expense and $9 million of net charges for restructuring, impairment and divestiture activity. These decreases were partially offset by the increased volume mentioned above and cost savings initiatives.

Fire and Security

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

	For the Quarters Ended
	March 31, 2006			April 1, 2005
Revenue from product sales	$	1,345		$	1,331
Service revenue		1,528			1,543
Net revenue	$	2,873		$	2,874
Operating income	$	289		$	311
Operating margin		10.1	%		10.8	%

        Net revenue for Fire and Security remained flat in the quarter ended March 31, 2006 over the quarter ended April 1, 2005. Unfavorable changes in foreign currency ($53 million) and the negative impact of acquisitions and divestitures ($35 million) were primarily offset by revenue increases at Worldwide Fire Services as a result of growth in electrical and mechanical contracting in North America and Tyco Safety Products due to suppression products. Worldwide Security also increased operationally, although to a lesser extent, as a result of stronger residential and commercial sales in North America.

        Operating income and operating margin decreased in the quarter ended March 31, 2006 over the same period in the prior year. Revenue increases at Worldwide Fire Services and Tyco Safety Products were offset by lower gross margins within Worldwide Fire Services and Worldwide Security and a $10 million charge for stock option expense.

        Attrition rates for customers in our global electronic security services business remained relatively constant at 14.4% on a trailing twelve-month basis as of March 31, 2006, as compared to 14.3% as of December 30, 2005.

42

Healthcare

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

	For the Quarters Ended
	March 31, 2006			April 1, 2005
Revenue from product sales	$	2,392		$	2,352
Service revenue		17			17
Net revenue	$	2,409		$	2,369
Operating income	$	579		$	689
Operating margin		24.0	%		29.1	%

        Net revenue for Healthcare increased 1.7% in the quarter ended March 31, 2006 over the quarter ended April 1, 2005. This increase resulted primarily from increased revenue within Medical Devices and Supplies, largely driven by Europe within the International division and to a much lesser extent, higher product sales in vessel sealing within Surgical. Additionally, revenues within Pharmaceuticals increased over the prior year relating to specialty chemicals and the quarter ended March 31, 2006 was favorably impacted by acquisition and divestiture activity ($15 million). Partially offsetting these increases were unfavorable changes in foreign currency exchange rates ($59 million) and revenue declines within Imaging, primarily due to the impact of voluntary product recalls ($25 million).

        Operating income and operating margin in the quarter ended March 31, 2006 decreased $110 million and 5.1 percentage points, respectively, as compared to the quarter ended April 1, 2005. The increased revenue within Medical Devices and Supplies noted above was offset by the impact of the voluntary product recalls and increased compliance-related costs of $31 million and continued weakness in Retail of $14 million. Additionally, Healthcare invested an incremental $43 million in research and development and sales and marketing over the same period in the prior year. Operating income in the quarter ended March 31, 2006 includes $46 million of divestiture gains related to the sale of the Radionics business, a $10 million charge related to stock option expense and was adversely impacted by unfavorable foreign exchange rates ($19 million). The quarter ended April 1, 2005 benefited $20 million from the refinement of litigation liabilities and related insurance recoveries.

Engineered Products and Services

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

	For the Quarters Ended
	March 31, 2006			April 1, 2005
Revenue from product sales	$	1,343		$	1,282
Service revenue		345			325
Net revenue	$	1,688		$	1,607
Operating income	$	192		$	165
Operating margin		11.4	%		10.3	%

        Net revenue for Engineered Products and Services increased 5.0% in the quarter ended March 31, 2006 over the quarter ended April 1, 2005, which included a 4.8% increase in product revenue and a 6.2% increase in service revenue. The increase in net revenue was due to higher demand in industrial

43

and commercial markets and increased project sales, primarily at Flow Control and Fire & Building Products. Partially offsetting these increases were unfavorable changes in foreign currency exchange rates ($34 million).

        Operating income increased 16.4% while operating margins increased 1.1 percentage points in the quarter ended March 31, 2006 as compared to the quarter ended April 1, 2005. The increase in operating income was primarily attributable to improved volume at Flow Control and Fire & Building Products as well as higher project margins at Infrastructure Services. These increases were partially offset by reduced steel spreads of $14 million at Electrical & Metal Products and $5 million of stock option expense.

Corporate

        Corporate expenses were $113 million and $136 million in the quarters ended March 31, 2006 and April 1, 2005, respectively. The current period includes $23 million of costs related to the Proposed Separation and $8 million of stock option expense. The same period in the prior year included $21 million of TGN operating losses and $50 million for the SEC settlement.

Adoption of SFAS No. 123R

        Effective October 1, 2005, the Company adopted SFAS No. 123R, Share-Based Payment, which requires compensation costs related to share-based transactions, including employee stock options, to be recognized in the financial statements based on fair value. SFAS No. 123R revises SFAS No. 123, as amended, Accounting for Stock-Based Compensation, and supersedes Accounting Principles Board ("APB") Opinion No. 25, Accounting for Stock Issued to Employees. Tyco adopted SFAS No. 123R using the modified prospective application transition method. Under this method, compensation cost is recognized for the unvested portion of share-based payments granted prior to October 1, 2005 and all share-based payments granted subsequent to September 30, 2005 over the related vesting period. Prior to the first quarter of 2006, the Company applied the intrinsic value based method prescribed in APB Opinion No. 25 in accounting for employee stock based compensation. Prior period results have not been restated. Due to the adoption of SFAS No. 123R, the Company's results for the quarter and six months ended March 31, 2006 include incremental share-based compensation expense totaling $46 million and $94 million, respectively. As such, basic and diluted earnings per share were impacted by $0.02 and $0.03 for the three and six months ended March 31, 2006, respectively.

Interest Income and Expense

        Interest income was $33 million in the quarter ended March 31, 2006 as compared to $31 million in the quarter ended April 1, 2005. Interest expense was $189 million in the quarter ended March 31, 2006 as compared to $208 million in the quarter ended April 1, 2005. The decrease in interest expense reflects a lower debt balance, partially offset by the impact of higher interest rates on our interest rate swap program compared to the same period in the prior year.

Other Expense, Net

        During the quarter ended April 1, 2005, the Company recorded losses from the retirement of debt of $573 million.

Income Taxes

        Our effective income tax rate was 13.4% and 48.3% during the quarters ended March 31, 2006 and April 1, 2005, respectively. The effective rate for the current period was favorably impacted by $127 million relating to an adjustment to correct prior year tax reserves on legacy tax matters. In 2005

44

the effective rate was unfavorably impacted as a result of the retirement of debt for which no benefit existed.

Six Months Ended March 31, 2006 Compared to Six Months Ended April 1, 2005

Electronics

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

	For the Six Months Ended
	March 31, 2006			April 1, 2005
Revenue from product sales	$	6,154		$	5,943
Service revenue		104			69
Net revenue	$	6,258		$	6,012
Operating income	$	845		$	910
Operating margin		13.5	%		15.1	%

        Net revenue for Electronics increased $246 million in the six months ended March 31, 2006 over the six months ended April 1, 2005. The increase in net revenue reflects volume growth which was broad based across customer-end markets, especially communications, consumer electronics, industrial machinery and power utilities. Unfavorable changes in foreign currency exchange rates adversely impacted net revenue by $200 million.

        Operating income and operating margin for the six months ended March 31, 2006 decreased as compared to the same period in the prior year due primarily to increased material costs of approximately $93 million and unfavorable changes in foreign currency exchange rates ($34 million). Operating income for the six months ended March 31, 2006 also includes a $24 million charge for stock option expense and net restructuring, impairment and divestiture charges of $14 million compared to net restructuring and other credits of $3 million in the six months ended April 1, 2005. These decreases were partially offset by the increased volume and cost savings initiatives.

Fire and Security

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

	For the Six Months Ended
	March 31, 2006			April 1, 2005
Revenue from product sales	$	2,612		$	2,660
Service revenue		3,054			3,096
Net revenue	$	5,666		$	5,756
Operating income	$	517		$	594
Operating margin		9.1	%		10.3	%

        Net revenue for Fire and Security decreased 1.6% in the six months ended March 31, 2006 over the six months ended April 1, 2005, which was comprised of a 1.8% decrease in product revenue and a 1.4% decrease in service revenue. The decrease in net revenue was primarily due to unfavorable changes in foreign currency exchange rates ($113 million) along with the negative impact of divestitures and acquisitions ($94 million) partially offset by increases at Worldwide Fire Services primarily due to

45

growth in electrical and mechanical contracting in North America. Worldwide Security and Tyco Safety Products also increased operationally, although to a much lesser extent.

        Operating income and operating margin decreased in the six months ended March 31, 2006 over the same period in the prior year. The decrease was primarily due to lower margins in Worldwide Fire Services and Worldwide Security offsetting the increased revenue discussed above and a $21 million charge for stock option expense. Also, the impact of cost reduction efforts were offset by increased sales and marketing spending.

        Attrition rates for customers in our global electronic security services business improved to an average of 14.4% on a trailing twelve-month basis as of March 31, 2006, as compared to 14.8% as of September 30, 2005.

Healthcare

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

	For the Six Months Ended
	March 31, 2006			April 1, 2005
Revenue from product sales	$	4,664		$	4,655
Service revenue		32			33
Net revenue	$	4,696		$	4,688
Operating income	$	1,118		$	1,270
Operating margin		23.8	%		27.1	%

        Net revenue for Healthcare remained relatively flat in the six months ended March 31, 2006 over the six months ended April 1, 2005. Revenue increased in Medical Devices and Supplies, largely driven by Europe in the International division related to increased volume of surgical and critical care products. Increased sales in active pharmaceutical ingredients and specialty chemicals within Pharmaceutical also contributed to the increase, although to a much lesser extent. These increases were primarily offset by unfavorable changes in foreign currency exchange rates ($110 million). Although revenue increased in Imaging and Respiratory, it was negatively impacted by voluntary product recalls ($59 million).

        Operating income and operating margin in the six months ended March 31, 2006 decreased as compared to the six months ended April 1, 2005. The increased volume in International was offset by the impact of voluntary product recalls and increased compliance-related costs of $77 million, increased raw material costs of $44 million and continued weakness in Retail of $34 million. Operating income was adversely impacted by $35 million due to changes in foreign currency exchange rates, as well as a $22 million charge for stock option expense. Additionally, the six months ended March 31, 2006 includes an incremental $146 million investment in research and development and sales and marketing as well as a $46 million gain on divestiture relating to the sale of a business within Medical Devices and Supplies. The six months ended April 1, 2005 benefited $20 million from the refinement of litigation liabilities and related insurance recoveries.

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Engineered Products and Services

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

	For the Six Months Ended
	March 31, 2006			April 1, 2005
Revenue from product sales	$	2,619		$	2,461
Service revenue		673			659
Net revenue	$	3,292		$	3,120
Operating income	$	361		$	337
Operating margin		11.0	%		10.8	%

        Net revenue for Engineered Products and Services increased 5.5% in the six months ended March 31, 2006 over the six months ended April 1, 2005, which included a 6.4% increase in product revenue and a 2.1% increase in service revenue. The increase in net revenue was primarily due to higher demand in industrial and commercial markets and increased project sales at Flow Control and Fire & Building Products. The above increase in revenue was partially offset by unfavorable changes in foreign currency exchange rates ($58 million).

        Operating income increased 7.1% for the six months ended March 31, 2006 as compared to the six months ended April 1, 2005. The increase in operating income was due to improved volume at Flow Control and Fire & Building Products as well as higher project margins at Infrastructure Services. These increases were partially offset by reduced steel spreads of $50 million at Electrical & Metal Products and $10 million of stock option expense.

Corporate

        Corporate expenses were $208 million and $216 million in the six months ended March 31, 2006 and April 1, 2005, respectively. The current period includes $31 million of costs related to the Proposed Separation as well as $17 million of stock option expense. The same period in the prior year included $42 million of TGN operating losses and $50 million for the SEC settlement.

Interest Income and Expense

        Interest income was $70 million in the six months ended March 31, 2006 as compared to $68 million in the six months ended April 1, 2005. Interest expense was $378 million in the six months ended March 31, 2006 as compared to $424 million in the six months ended April 1, 2005. The decrease in interest expense reflects a lower debt balance, partially offset by the impact of higher interest rates on our interest rate swap program compared to the same period in the prior year.

Other Expense, Net

        During the six months ended April 1, 2005, the Company recorded losses from the retirement of debt of $729 million.

Income Taxes

        Our effective income tax rate was 18.5% and 37.7% during the six months ended March 31, 2006 and April 1, 2005, respectively. The effective rate for the current period was favorably impacted by $127 million relating to an adjustment to correct prior year tax reserves on legacy tax matters. In 2005

47

the effective rate was unfavorably impacted as a result of the retirement of debt for which no benefit existed.

Cumulative effect of accounting change

        During 2005, the Company changed the measurement date for its pension and postretirement benefit plans, from September 30^thto August 31^st, effective October 1, 2004. The Company believes that the one-month change of measurement date was a preferable change as it allows management adequate time to evaluate and report the actuarial information in the Company's Consolidated Financial Statements under the accelerated reporting deadlines. As a result of this change, the Company recorded a $21 million after-tax gain ($28 million pre-tax) cumulative effect adjustment in the six months ended April 1, 2005.

Discontinued Operations and Divestitures

Discontinued Operations

        In May 2005, Tyco announced its intent to explore the divesture of its Plastics and Adhesives business segment, a global manufacturer of plastic film, specialty tapes and adhesives, coated products and garment hangers. At September 30, 2005, the Plastics and Adhesives segment met the held for sale criteria and was included in discontinued operations in all periods presented.

        During the first quarter of 2006, the Company assessed the recoverability of the carrying value for the Plastics and Adhesives businesses. Based on market conditions during the quarter and the terms and conditions included or expected to be included in the sale agreements, fair value estimates of the businesses were reassessed. As a result of these assessments, the Company recorded a pre-tax impairment charge of $275 million for the Plastics, Adhesives and Ludlow Coated Products Group and a $17 million pre-tax impairment charge for the A&E Products Group to write down the disposal groups to their fair values less costs to sell.

        During the second quarter of 2006, the Company closed the sale of the Plastics, Adhesives and Ludlow Coated Products businesses for $975 million in gross cash proceeds. Estimated working capital and other adjustments resulted in net proceeds of $907 million. Settlement of the full working capital adjustment is expected prior to year end. The Company recognized a pre-tax loss on sale of approximately $10 million, in addition to the $275 million pre-tax impairment charge recorded during the first quarter of 2006. The sales agreement also provides for a contingent future payment of up to $30 million to Tyco based on average resin prices in the future.

        Also, during the second quarter of 2006, the Company reassessed the recoverability of the carrying value for the A&E Products Group in conjunction with the terms and conditions included in the definitive sale agreement entered into during the quarter. As a result of this reassessment, the Company recorded an additional pre-tax impairment charge of $5 million to write the business down to its fair value less costs to sell. Tyco expects to complete the A&E Products Group sale transaction during 2006.

        During the six months ended April 1, 2005, the Company recorded a $202 million pre-tax goodwill and long-lived asset impairment charge in the A&E Products Group based on an interim assessment of the recoverability of both goodwill and long-lived assets. As a result of this assessment, the Company determined that the book value of certain long-lived assets in the A&E Products reporting unit was greater than their estimated fair value and consequently recorded a long-lived asset impairment charge of $40 million. The Company also determined that the book value of the A&E Products reporting unit was in excess of its estimated fair value which resulted in a goodwill impairment charge of $162 million.

        During the six months ended April 1, 2005, the Company divested six businesses that were reported as discontinued operations and reported pre-tax losses on sale of $80 million.

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Gain (losses) on divestitures

        During the six months ended March 31, 2006, the Company divested five businesses that were reported as continuing operations in Fire and Security, Healthcare and Electronics. The Company recorded net gains on divestitures of $45 million in connection with the divestiture of these businesses, as well as $7 million of divestiture charges related to the write-down to estimated fair value, less costs to sell, of certain other held for sale businesses.

        During the six months ended April 1, 2005, the Company divested six businesses that were within the Fire and Security, Healthcare and Engineered Products and Services segments. The Company reported losses and impairments on divestitures to write the carrying value of such assets down to their estimated fair value, less costs to sell, of $20 million, including $3 million reflected in cost of sales.

Acquisitions

        During the six months ended March 31, 2006, Tyco's Healthcare segment acquired over 90% ownership in Floreane Medical Implants, S.A. ("Floreane") for approximately $122 million in cash, net of cash acquired of $3 million. Floreane is an innovator in the development of surgical support implants for parietal, urological and gynecological surgery. Additional outstanding shares are expected to be acquired during the remainder of 2006. Cash paid for other acquisitions totaled $12 million.

        During the six months ended April 1, 2005, the Company completed three acquisitions for an aggregate cost of $10 million.

        The results of operations of the acquired companies have been included in the consolidated results from the respective acquisition dates. These acquisitions did not have a material effect on the Company's financial position, results of operations or cash flows.

Change in Fiscal Year and Reporting Calendar Alignment

        Effective October 1, 2004, Tyco changed its fiscal year end from a calendar fiscal year ending September 30 to a "52-53 week" year ending on the last Friday of September, such that each quarterly period will be 13 weeks in length. In addition, certain of the Company's subsidiaries had consistently closed their books up to one month prior to the Company's fiscal period end. These subsidiaries now report results for the same period as the reported results of the consolidated Company. The impact of this change was not material to the Consolidated Financial Statements. Net income for the transition period related to this change was $26 million and was reported within Shareholders' Equity during 2005.

Critical Accounting Policies and Estimates

        The preparation of the Consolidated Financial Statements in conformity with GAAP requires management to use judgment in making estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities and the reported amounts of revenue and expenses.

        We believe that our accounting policies for depreciation and amortization of security monitoring systems, goodwill, revenue recognition, income taxes and long-lived assets are based on, among other things, judgments and assumptions made by management that include inherent risks and uncertainties. During the six months ended March 31, 2006, there were no significant changes to these policies or in the underlying accounting assumptions and estimates used in the above critical accounting policies from those disclosed in the Consolidated Financial Statements and accompanying notes contained in the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 2005 (the "2005 Form 10-K").

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Liquidity and Capital Resources

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

	For the Quarters Ended						For the Six Months Ended
	March 31, 2006			April 1, 2005			March 31, 2006			April 1, 2005
Cash flows from operating activities:
Operating income	$	1,408		$	1,525		$	2,633		$	2,895
Non-cash restructuring and asset impairment charges, net		(3	)		2			3			(2	)
(Gains) losses on divestitures		(49	)		(5	)		(38	)		13
Depreciation and amortization(1)		519			525			1,035			1,054
Deferred income taxes		77			(22	)		51			72
Provision for losses on accounts receivable and inventory		38			60			92			126
Non-cash compensation expense		77			14			152			34
Other, net		4			(14	)		18			12
Net change in working capital		(788	)		79			(1,574	)		(679	)
Interest income		33			31			70			68
Interest expense		(189	)		(208	)		(378	)		(424	)
Income tax expense		(168	)		(373	)		(430	)		(679	)
Net cash provided by operating activities	$	959		$	1,614		$	1,634		$	2,490
Other cash flow items:
Capital expenditures, net(2)	$	(420	)	$	(316	)	$	(712	)	$	(595	)
Decrease in the sale of accounts receivable		3			6			7			15
Acquisition of customer accounts (ADT dealer program)		(92	)		(68	)		(169	)		(135	)
Purchase accounting and holdback liabilities		(6	)		(6	)		(86	)		(23	)

⁽¹⁾

The quarters ended March 31, 2006 and April 1, 2005 included depreciation expense of $355 million and $362 million, respectively, and amortization of intangible assets of $164 million and $163 million, respectively. The six months ended March 31, 2006 and April 1, 2005 included depreciation expense of $709 million and $728 million, respectively, as well as amortization of intangible assets of $326 million in both periods.

⁽²⁾

Included net proceeds received for the sale/disposition of property, plant and equipment of $8 million and $24 million for the quarters ended March 31, 2006 and April 1, 2005, respectively, as well as $17 million and $52 million for the six months ended March 31, 2006 and April 1, 2005, respectively.

        The net change in working capital was a cash decrease of $788 million in the three months ended March 31, 2006. The change in working capital included a $443 million decrease in accrued and other current liabilities during the three months, primarily related to decreased accrued legal and audit fees and income taxes, as well as a $244 million increase in inventories.

        The net change in working capital was a cash decrease of $1,574 million in the six months ended March 31, 2006. The components of this change are set forth in detail in the Consolidated Statements of Cash Flows. The change in working capital included an $888 million decrease in accrued and other current liabilities during the six months, primarily related to decreased accrued legal and audit fees, income taxes and the annual payout of cash bonuses for performance in the prior year, as well as a $517 million increase in inventories.

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        Cash flows from operating activities and other cash flow items by segment were as follows ($ in millions):

	Electronics			Fire and Security			Healthcare			Engineered Products and Services			Corporate			Total
Cash flows from operating activities:
Operating income (loss)	$	845		$	517		$	1,118		$	361		$	(208	)	$	2,633
Non-cash restructuring and asset impairment charges, net		—			—			3			—			—			3
Losses (gains) on divestitures		5			1			(46	)		—			2			(38	)
Depreciation		236			286			133			49			5			709
Intangible assets amortization		35			259			31			1			—			326
Depreciation and amortization		271			545			164			50			5			1,035
Deferred income taxes		—			—			—			—			51			51
Provision for losses on accounts receivable and inventory		43			11			27			11			—			92
Net increase in working capital and other		(73	)		(211	)		(592	)		(192	)		(336	)		(1,404	)
Interest income		—			—			—			—			70			70
Interest expense		—			—			—			—			(378	)		(378	)
Income tax expense		—			—			—			—			(430	)		(430	)
Net cash provided by (used in) operating activities	$	1,091		$	863		$	674		$	230		$	(1,224	)	$	1,634
Other cash flow items:
Capital expenditures, net	$	(253	)	$	(210	)	$	(204	)	$	(42	)	$	(3	)	$	(712	)
Decrease in sale of accounts receivable		—			6			1			—			—			7
Acquisition of customer accounts (ADT dealer program)		—			(169	)		—			—			—			(169	)
Purchase accounting and holdback liabilities		(76	)		(3	)		(6	)		(1	)		—			(86	)

        On January 26, 2006, we repaid and terminated one of our synthetic lease facilities for a total cash payment of $226 million, reducing principal debt and minority interest by $214 million and $10 million, respectively. Also, during the first six months of 2006, we utilized $1.0 billion in cash for scheduled repayments of public notes.

        During the first six months of 2006, we repurchased 30.0 million of our common shares for $809 million, continuing the $1.5 billion share repurchase program previously approved by the Board of Directors in 2005. We completed the $1.5 billion share repurchase program in April 2006 with the additional purchase of 14.5 million shares for $391 million. In May 2006, the Board of Directors approved a new $2.0 billion share repurchase program. We will continue to use excess cash to repurchase shares over the balance of the year.

        During the six months ended March 31, 2006, we purchased approximately 193,738 customer contracts for electronic security services through the ADT dealer program for cash of $169 million.

        During the six months ended March 31, 2006, we paid $86 million relating to purchase accounting and holdback liabilities related to certain prior period acquisitions. Holdback liabilities represent a portion of the purchase price that is withheld from the seller pending finalization of the acquisition balance sheet and other contingencies. At March 31, 2006, holdback liabilities on our Consolidated Balance Sheets were $77 million, of which $16 million are included in accrued and other current liabilities and $61 million was included in other liabilities.

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        During the six months ended March 31, 2006, we paid $134 million related to acquisitions of businesses, net of cash acquired, including a net $122 million related to Tyco's acquisition of over 90% ownership of Floreane. Floreane is an innovator in the development of surgical support implants for parietal, urological and gynecological surgery. Additional outstanding shares are expected to be acquired during the remainder of 2006.

        At March 31, 2006, $44 million of acquisition liabilities remained on our Consolidated Balance Sheets, of which $12 million are included in accrued and other current liabilities and $32 million are included in other liabilities.

        We funded capital expenditures to improve the cost structure of our businesses, invest in new processes and technology, and maintain high quality production standards. The level of capital expenditures is not expected to exceed depreciation in 2006 and is expected to remain consistent with the level of spending in 2005.

        Income taxes paid, net of refunds, during the six months ended March 31, 2006 was $534 million.

        During the first six months of 2006, we made additional cash outflows of approximately $400 million for the resolution of certain previously accrued legal matters including a patent dispute in the Healthcare segment. We expect to make a cash payment of $50 million to settle the SEC enforcement action in 2006.

        As previously mentioned, on January 13, 2006, the Company announced that its Board of Directors approved a plan to separate the Company into three separate, publicly traded companies. In connection with the Proposed Separation, we estimate that the total costs to complete the transaction will approximate $1.0 billion, largely for tax restructuring and debt refinancing.

Capitalization

        Shareholders' equity was $34.2 billion, or $16.68 per share, at March 31, 2006, compared to $32.5 billion, or $16.10 per share, at September 30, 2005. Shareholders' equity increased $1.7 billion as net income for the six months ended March 31, 2006 of $1.6 billion and the exchange of convertible debt due 2018 of $1.2 billion was offset by the repurchase of common shares by subsidiary, as previously mentioned, the payment of dividends and unfavorable foreign currency translation.

        Total debt was $10.0 billion and total debt as a percentage of total capitalization (total debt and shareholders' equity) was 23% at March 31, 2006 compared to 28% at September 30, 2005. Our debt levels significantly decreased as compared to September 30, 2005 primarily due to the redemption of $1.2 billion of our Series A 2.75% convertible senior debentures due 2018 with a 2008 put option, and the scheduled $1.0 billion repayment of our 6.375% public notes due 2006. Additionally, we also repaid and terminated one of our synthetic lease facilities reducing our debt by $214 million. Our cash balance decreased to $2.4 billion at March 31, 2006, as compared to $3.2 billion at September 30, 2005.

        Tyco International Group S.A., a wholly-owned subsidiary of the Company organized under the laws of Luxembourg ("TIGSA"), holds a $1.0 billion 5-year revolving credit facility expiring on December 16, 2009. TIGSA also holds a $1.5 billion 3-year revolving bank credit facility expiring on December 22, 2006 and a $500 million 3-year unsecured letter of credit facility expiring on June 15, 2007. At March 31, 2006, letters of credit of $475 million have been issued under the $500 million facility and $25 million remains available for issuance. There were no amounts borrowed under the credit facilities at March 31, 2006, however, the Company may borrow under these facilities from time to time to manage its overall short-term liquidity needs.

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        The Company's bank credit agreements contain a number of financial and other covenants, such as a limit on the ratio of debt to earnings before interest, taxes, depreciation and amortization, minimum levels of net worth, and limits on the incurrence of liens. As previously discussed, a synthetic lease facility was repaid and terminated on January 26, 2006. At March 31, 2006, the Company had one remaining synthetic lease facility with other covenants, including interest coverage and leverage ratios. The Company's outstanding indentures contain customary covenants including limits on negative pledges, subsidiary debt and sale/leaseback transactions. None of these covenants are presently considered restrictive to the Company's operations. The Company is currently in compliance with all of its debt covenants.

        Following the Proposed Separation, it is anticipated that all three companies will be capitalized to provide financial flexibility to take advantage of future growth opportunities. They are expected to have financial policies, balance sheet and credit metrics that are commensurate with solid investment grade ratings. Tyco will continue to follow financial policies that are consistent with its current credit ratings until the planned transactions take place. The Company's existing debt is expected to be allocated among the three companies or refinanced. Any existing or potential liabilities that cannot be associated with a particular entity will be allocated appropriately to each of the businesses, and a sharing agreement among the three companies will be established.

        On December 9, 2004, the Board of Directors approved an increase in the quarterly dividend on our common shares from $0.0125 to $0.10 per share. As a result, dividend payments were $402 million related to the first six months of 2006 versus $225 for the first six months of 2005. Following the Proposed Separation, we expect that all three companies will be dividend-paying companies.

        As previously discussed, in May 2006, the Board of Directors approved a new $2.0 billion share repurchase program. Pursuant to the new program, we may repurchase Tyco shares from time to time in open market purchases at prevailing market prices, in negotiated transactions off the market, or pursuant to an approved 10b5-1 trading plan in accordance with applicable regulations. A Rule 10b5-1 trading plan permits the Company to repurchase its shares during periods when the Company would not normally be active in the trading market due to insider trading laws, provided the plan is adopted when the Company is not aware of material non-public information. Under a Rule 10b5-1 trading plan, we would be unable to repurchase shares above a pre-determined price per share. Additionally, the maximum number of shares that we may purchase each day would be governed by Rule 10b-18.

Commitments and Contingencies

        At March 31, 2006, the Company had a contingent purchase price liability of $80 million related to the 2001 acquisition of Com-Net by Electronics. This represents the maximum amount payable to the former shareholders of Com-Net only after the construction and installation of a communications system for the State of Florida is finished and the State has approved the system based on the guidelines set forth in the contract. A liability for this contingency has not been recorded in Tyco's Consolidated Financial Statements as the outcome of this contingency cannot be reasonably determined.

        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.

Class Actions

        For a detailed discussion of contingencies related to Tyco's securities class actions, shareholder derivative litigation, Employee Retirement Income Security Act litigation and investigation, and litigation against our former senior management, see Note 9 to our Consolidated Financial Statements. We are generally obligated to indemnify our directors and officers and our former directors and officers who are named as defendants in some or all of these matters to the extent required by Bermuda law. In addition, our insurance carriers may decline coverage, or our coverage may be insufficient to cover our expenses and liability, in some or all of these matters. We are unable at this time to estimate what

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our ultimate liability in these matters may be, and it is possible that we will be required to pay judgments or settlements and incur expenses, in excess of any insurance coverage, in aggregate amounts that would have a material adverse effect on our financial position, results of operations or cash flows. At this time, it is not possible to estimate the amount of loss or probable losses, if any, that might result from an adverse resolution of these matters.

Investigations

        For a detailed discussion of contingencies related to governmental investigations related to Tyco see Note 9 to our Consolidated Financial Statements. We cannot predict when these investigations will be completed, nor can we predict what the results of these investigations may be. It is possible that we will be required to pay material fines, consent to injunctions on future conduct, lose the ability to conduct business with government instrumentalities (which in turn could negatively impact our business with non-governmental customers) or suffer other penalties, each of which could have a material adverse effect on our business. It is not possible to estimate the amount of loss, or range of possible loss, if any, that might result from an adverse resolution of these matters.

        On April 17, 2006, the Company reached a settlement that closes the SEC Enforcement Division's investigation of certain accounting practices and other actions by former Tyco officers. As expected, the Company has been ordered to make a payment of $50 million. In 2005, the Company recorded a charge of $50 million, which represented the Company's best estimate of the amount in fines and penalties management believes the Company will likely pay to resolve these matters.

Intellectual Property and Antitrust Litigation

        The Company is party to a number of patent infringement and antitrust actions that may require the Company to pay damage awards. Tyco has assessed the status of these matters and has recorded liabilities related to certain of these matters where appropriate. For a detailed discussion of contingencies related to Tyco's intellectual property and antitrust litigation, see Note 9 to our Consolidated Financial Statements.

Environmental Matters

        Tyco is involved in various stages of investigation and cleanup related to environmental remediation matters at a number of sites. The ultimate cost of site cleanup is difficult to predict given the uncertainties regarding the extent of the required cleanup, the interpretation of applicable laws and regulations and alternative cleanup methods. As of March 31, 2006, Tyco concluded that it was probable that it would incur remedial costs in the range of approximately $138 million to $421 million. As of March 31, 2006, Tyco concluded that the best estimate within this range is approximately $204 million, of which $32 million is included in accrued and other current liabilities and $172 million is included in other liabilities on the Company's Consolidated Balance Sheets. In view of the Company's financial position and reserves for environmental matters of $204 million, we believe that any potential payment of such estimated amounts will not have a material adverse effect on our financial position, results of operations or cash flows.

Asbestos Matters

        For a detailed discussion of contingencies related to Tyco's asbestos matters, see Note 9 to our Consolidated Financial Statements. We believe that we have valid defenses to these claims and intend to continue to defend them vigorously. Additionally, we believe that we have adequate amounts recorded for potential settlements and adverse judgments in asbestos-related litigation. While it is not possible at this time to determine with certainty the ultimate outcome of these asbestos-related proceedings, the Company believes that the final outcome of all known and anticipated future claims, after taking into account its substantial indemnification rights and insurance coverage, will not have a material adverse effect on the Company's financial position, results of operations or cash flows.

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Income Taxes

        Tyco and its subsidiaries' income tax returns are periodically examined by various regulatory tax authorities. In connection with such examinations, tax authorities, including the IRS, have raised issues and proposed tax adjustments. The Company is reviewing and contesting certain of the proposed tax adjustments. Amounts related to these tax adjustments and other tax contingencies that management has assessed as probable and estimable have been recorded through the income tax provision, equity or goodwill, as appropriate.

        The American Jobs Creation Act of 2004 (the "AJCA"), signed into law in October 2004, replaces an export incentive with a deduction from domestic manufacturing income. This provision of the AJCA did not have a material impact on the financial condition, results of operations or cash flows of the Company. The AJCA also allows the Company to repatriate up to $500 million of permanently reinvested foreign earnings in 2006 at an effective tax rate of 5.25%. This incentive would apply to the Company's U.S. owned controlled foreign companies. The Company continues to review whether to take advantage of this provision of the AJCA.

Compliance Matters

        In 2003, an allegation was brought to our attention that during the period from 1999 through 2003 certain improper payments were made by a non-U.S. subsidiary of Tyco. During 2005, Tyco reported to the U.S. Department of Justice ("DOJ") and the SEC the investigative steps and remedial measures that it has taken in response to the allegations. Tyco also informed the DOJ and the SEC that it has retained outside counsel to perform a company-wide baseline review of its policies, controls and practices with respect to compliance with the Foreign Corrupt Practices Act, that it would continue to make periodic progress reports to them, and that it would present its factual findings upon conclusion of the baseline review. On March 15, 2006, the Company held a meeting with the DOJ and SEC to provide an update on the baseline review being conducted by outside counsel and provided a briefing concerning additional instances of potential improper payments identified by the Company in the course of its ongoing compliance activities.

        At this time, Tyco cannot predict the outcome of these matters reported to regulatory and law enforcement authorities and therefore cannot estimate the range of potential loss or extent of risk, if any, that may result from an adverse resolution of any or all of these matters.

Other Matters

        The Company is a party to a contract dispute arising from Earth Tech's contract with the City of Phoenix, Arizona for the expansion of the City's 91^st Avenue Waste Water Treatment Plant. Both Earth Tech and the City of Phoenix have filed lawsuits in the local county superior court alleging the other party has breached the contract. At this time, Tyco cannot predict the outcome of this matter and therefore cannot estimate the range of potential loss or extent of risk, if any, that may result from an adverse resolution of this matter. For a detailed discussion of contingencies related to Tyco's other legal matters, see Note 9 to our Consolidated Financial Statements.

        The Company is a defendant in a number of other pending legal proceedings incidental to present and former operations, acquisitions and dispositions. The Company does not expect the outcome of these proceedings, either individually or in the aggregate, to have a material adverse effect on its financial position, results of operations or cash flows.

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Backlog

        At March 31, 2006, Tyco had a backlog of unfilled orders of $14.0 billion, compared to a backlog of $13.6 billion at September 30, 2005. Backlog by segment was as follows ($ in millions):

	March 31, 2006		September 30, 2005
Fire and Security	$	6,832	$	6,732
Engineered Products and Services		4,075		4,007
Electronics		2,766		2,591
Healthcare		299		272
	$	13,972	$	13,602

        Within Fire and Security, backlog increased primarily as a result of strong bookings in North America and Asia. Backlog for Fire and Security includes recurring "revenue-in-force," which represents twelve months' fees for monitoring and maintenance services under contract in the security business. The amount of recurring revenue-in-force at March 31, 2006 and September 30, 2005 was $3,600 million and $3,550 million, respectively. Backlog within Engineered Products and Services increased primarily as a result of increased orders at Flow Control. Within Electronics, backlog increased as a result of increased bookings in most key end markets. Backlog in Healthcare represents unfilled orders, which, in the nature of the business, are normally shipped shortly after purchase orders are received. We do not view backlog in Healthcare to be a significant indicator of the level of future sales activity.

Off-Balance Sheet Arrangements

Sale of Accounts Receivable

        The aggregate amount outstanding under the Company's remaining international accounts receivable programs was $73 million and $80 million at March 31, 2006 and September 30, 2005.

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 2006 through the completion of such transactions. The guarantees would be triggered in the event of nonperformance and the potential exposure for nonperformance under the guarantees would not have a material effect on the Company's financial position, results of operations or cash flows.

        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 does not have the ability to estimate the potential liability from such indemnities because they relate to unknown conditions. However, 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 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations—Commitments and Contingencies—Environmental Matters.

        The Company has an off-balance sheet leasing arrangement for five cable laying sea vessels. Upon expiration of this lease in October 2006, a subsidiary of the Company has the option to buy these vessels for approximately $280 million, or return the vessels to the lessor and, under a residual guarantee, pay any shortfall in sales proceeds to the lessor from a third party in an amount not to exceed $235 million. As of March 31, 2006, the Company expects this obligation to be $54 million,

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which is recorded in the accompanying Consolidated Balance Sheet, based on an estimate of the fair value of the vessels performed by management with the assistance of a third-party valuation.

        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 generally records estimated product warranty costs at the time of sale. For further information on estimated product warranty, see Note 14 to the Consolidated Financial Statements.

Accounting Pronouncements

        Recently Adopted Accounting Pronouncement—Effective October 1, 2005, the Company adopted SFAS No. 123R, "Share-Based Payment," which requires compensation costs related to share-based transactions, including employee stock options, to be recognized in the financial statements based on fair value. SFAS No. 123R revises SFAS No. 123, as amended, "Accounting for Stock-Based Compensation," and supersedes APB Opinion No. 25, "Accounting for Stock Issued to Employees." Tyco adopted SFAS No. 123R using the modified prospective application transition method. Under this method, compensation cost is recognized for the unvested portion of share-based payments granted prior to October 1, 2005 and all share-based payments granted subsequent to September 30, 2005 over the related vesting period. Prior to the first quarter of 2006, the Company applied the intrinsic value based method prescribed in APB Opinion No. 25 in accounting for employee stock based compensation. Prior period results have not been restated. Due to the adoption of SFAS No. 123R, the Company's results for the three and six months ended March 31, 2006 include incremental share-based compensation expense totaling $46 million and $94 million, respectively. As such, basic and diluted earnings per share were impacted by $0.02 and $0.03 for the three and six months ended March 31, 2006, respectively.

        Recently Issued Accounting Pronouncements—In March 2005, the Financial Accounting Standards Board ("FASB") issued Interpretation ("FIN") No. 47, "Accounting for Conditional Asset Retirement Obligations—an interpretation of FASB Statement No. 143." This Interpretation clarifies the timing of liability recognition for legal obligations associated with an asset retirement when the timing and (or) method of settling the obligation are conditional on a future event that may or may not be within the control of the entity. FIN No. 47 is effective no later than the end of fiscal years ending after December 15, 2005. The Company is currently assessing the impact that FIN No. 47 will have on the results of its operations, financial position or cash flows.

        In June 2005, the FASB issued Staff Position ("FSP") No. 143-1, "Accounting for Electronic Equipment Waste Obligations," which provides guidance on accounting for historical waste obligations associated with the European Union Waste, Electrical and Electronic Equipment Directive ("WEEE Directive"). Under the directive, the waste management obligation for historical equipment (products put on the market on or prior to August 13, 2005) remains with the commercial user until the equipment is replaced, at which time the waste management obligation may be transferred to the producer of the replacement equipment. FSP No. 143-1 is effective for the first reporting period ending after June 8, 2005 or the date of the adoption of the WEEE Directive into law by the applicable European Union member country. As of the end of the second quarter of 2006, the Company continues to monitor and evaluate the effects that the adoption of FSP No. 143-1 will have on the results of operations and financial condition. Such effects will depend on the respective laws and regulations adopted by the EU member countries, their implementation guidance and the type of recycling programs and systems that are established.

Forward-Looking Information

        Certain statements in this report are "forward-looking statements" within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. All forward-looking statements involve risks and uncertainties. All statements contained herein that are not clearly historical in nature are forward-

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looking, and the words "anticipate," "believe," "expect," "estimate," "project" and similar expressions are generally intended to identify forward-looking statements. Any forward-looking statement contained herein, in press releases, written statements or other documents filed with the SEC, or in Tyco's communications and discussions with investors and analysts in the normal course of business through meetings, webcasts, phone calls and conference calls, regarding expectations with respect to sales, earnings, cash flows, operating efficiencies, product expansion, backlog, the consummation and benefits of acquisitions and divestitures, the Proposed Separation or other matters, as well as financings and repurchases of debt or equity securities, are subject to known and unknown risks, uncertainties and contingencies. Many of these risks, uncertainties and contingencies are beyond our control, and may cause actual results, performance or achievements to differ materially from anticipated results, performances or achievements. Factors that might affect such forward-looking statements include, among other things:

•

overall economic and business conditions;



•

the demand for Tyco's goods and services;



•

competitive factors in the industries in which Tyco competes;



•

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



•

results and consequences of Tyco's internal investigation and governmental investigations concerning the Company's governance, management, internal controls and operations;



•

the outcome of litigation and governmental proceedings as a result of actions taken by our former senior corporate management;



•

effect of income tax audit settlements;



•

the ratings on our debt and our ability to repay or refinance our outstanding indebtedness as it matures;



•

our ability to operate within the limitations imposed by financing arrangements and to maintain our credit ratings;



•

interest rate fluctuations and other changes in borrowing costs;



•

other capital market conditions, including foreign currency rate fluctuations;



•

availability of and fluctuations in the prices of key raw materials, including steel;



•

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



•

the ability to achieve cost savings in connection with the Company's strategic restructuring and Six Sigma initiatives;



•

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



•

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



•

changes in U.S. and non-U.S. government regulations in general, and in particular changes in rules and regulations regarding the safety, efficacy, sales, promotions, insurance reimbursement and pricing of Tyco's disposable medical products and other specialty products, as well as changes in rules and regulations regarding the retirement and disposal of certain electrical products;



•

the possible effects on Tyco of future legislation in the U.S. that may limit or eliminate potential U.S. tax benefits resulting from Tyco's incorporation in Bermuda or deny U.S. government contracts to Tyco based upon its incorporation in Bermuda; and



•

the potential distraction costs associated with negative publicity relating to actions of our former senior corporate management.

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        Additionally, there are several factors and assumptions that could affect the Company's plan to separate into three independent entities, our future results and cause actual results to differ materially from those expressed in our forward looking statements:

•

increased demands on the Company's management team as a result of the Proposed Separation;



•

changes in business, political and economic conditions in the U.S. and in other countries in which the Company currently does business;



•

changes in governmental regulations and policies and actions of regulatory bodies;



•

changes in operating performance;



•

required changes to existing financings, and changes in credit ratings, including those that may result from the Proposed Separation;



•

the Company's ability to obtain the financing necessary to consummate the Proposed Separation; and



•

the Company's ability to satisfy certain conditions precedent, including final approval by the Tyco Board of Directors, receipt of a tax opinion of counsel and the filing and effectiveness of registration statements with the SEC.

Item 3.    Quantitative and Qualitative Disclosures About Market Risk

        The Company's exposure to market risk from changes in interest rates and foreign currency exchange rates has not changed materially from our exposure discussed in the 2005 Form 10-K. In order to manage the volatility relating to our more significant market risks, we enter into forward foreign currency exchange contracts, cross-currency swaps, foreign currency options, and interest rate swaps. In order to achieve an appropriate balance of fixed and floating rate debt through the use of swaps, Tyco has swapped $3.0 billion notional amount of its fixed rate debt to floating rate debt. At March 31, 2006 we are receiving a weighted-average fixed rate of 6.3% and paying a weighted-average variable rate of 6.5% under these swap arrangements.

        We utilize established risk management policies and procedures in executing derivative financial instrument transactions. We do not execute transactions or hold derivative financial instruments for trading or speculative purposes. Derivative financial instruments related to interest rate sensitivity of debt obligations, intercompany cross-border transactions and anticipated non-functional currency cash flows, are used with the goal of mitigating a significant portion of these exposures when it is cost effective to do so. Counterparties to derivative financial instruments are limited to financial institutions with at least an A/A2 long-term debt rating.

Item 4.    Controls and Procedures

Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures

        We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

        Under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, we conducted an evaluation of the effectiveness of our disclosure controls and procedures, as defined under Exchange Act Rule 13a-15(e). There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives. Based on this evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that, as of March 31, 2006, our disclosure controls and procedures were

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effective to provide reasonable assurance that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported as and when required.

        To ensure that our internal control over financial reporting continues to operate effectively and efficiently, we proactively identify opportunities for control improvements. We have ongoing initiatives to standardize and upgrade various financial operating systems and eliminate many of the manual and redundant tasks previously performed under older systems or processes. These changes will be implemented in stages over the next several years. During the quarter, we continued to enhance the internal controls relating to income tax accounting including further strengthening the coordination between the tax and controllership functions, incorporating enhanced monitoring controls and implementing additional process level controls. We believe that these initiatives further strengthen our internal control over financial reporting, as well as automate a number of our processes and activities. We believe that the necessary procedures are in place to maintain effective internal control over financial reporting as these initiatives continue. There were no changes in our internal controls over financial reporting that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, these internal controls.

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PART II.    OTHER INFORMATION

Item 1.    Legal Proceedings

        Except as discussed below, there have been no material developments in the Company's legal proceedings since the Company filed the 2005 Form 10-K. For a description of the Company's previously reported legal proceedings, refer to Part I, Item 3. Legal Proceedings, in the 2005 Form 10-K.

Securities Class Actions

        As previously reported in our periodic filings, Tyco and certain of our former directors and officers have been named as defendants in over 40 securities class actions. Most of the securities class actions have now been transferred to the United States District Court for the District of New Hampshire by the Judicial Panel on Multidistrict Litigation for coordinated or consolidated pretrial proceedings. On January 28, 2003, a consolidated securities class action complaint was filed in these proceedings. On January 7, 2005, the Company answered the plaintiffs' consolidated complaint. On January 14, 2005, lead plaintiffs made a motion for class certification, which the Company opposed on July 22, 2005. That motion is still pending. On July 5, 2005, the Company moved for revision of the Court's October 14, 2004 order in light of a change in law, insofar as the order denied the Company's motion to dismiss the consolidated complaint for failure to plead loss causation. On December 2, 2005, the Court denied the Company's motion. On April 4, 2006 plaintiffs filed a partial motion for summary judgment that was denied.

        As previously reported in our periodic filings, a class action complaint, Ezra Charitable Trust v. Tyco International Ltd., was filed in the United States District Court for the Southern District of Florida on May 28, 2003. The Judicial Panel on Multidistrict Litigation transferred the action to the United States District Court for the District of New Hampshire. Thereafter, the Company moved to dismiss the complaint. On December 22, 2004, plaintiff moved to amend the complaint. The proposed amendment asserts causes of action under Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder against Tyco International Ltd. and Edward Breen, our current Chief Executive Officer, and seeks to add as defendants David FitzPatrick, our former Chief Financial Officer, and PricewaterhouseCoopers LLP, our former independent auditors. As against defendants Breen and FitzPatrick, the complaint asserts a cause of action under Section 20(a) of the Securities Exchange Act of 1934. On March 25, 2005, the United States District Court for the District of New Hampshire granted plaintiff's motion to amend. Plaintiff filed an amended complaint that day. On March 28, 2005, the Court denied defendants' motion to dismiss the original complaint, without prejudice to the defendants' ability to move against the amended complaint. On April 25, 2005, defendants moved to dismiss the consolidated amended class action complaint. On September 2, 2005, the United States District Court for the District of New Hampshire entered a Memorandum and Order dismissing the amended complaint. On October 18, 2005, plaintiff filed a notice to appeal in the United States District Court for the District of New Hampshire and briefing has begun.

        As previously reported in our periodic filings, the United States District Court for the District of New Jersey granted one plaintiff's motion for appointment as lead plaintiff in Stumpf v. Tyco International Ltd., an action originally filed on July 28, 2003 and O'Loughlin v. Tyco International Ltd., an action originally filed on September 26, 2003. On December 13, 2004, lead plaintiff Mark Newby filed a consolidated securities class action complaint purporting to represent a class of purchasers of TyCom securities between July 26, 2000 and December 17, 2001. Plaintiff names as defendants Tyco International Ltd., TyCom, Ltd., Goldman Sachs & Co., Merrill Lynch, Pierce, Fenner & Smith, Incorporated and Citigroup Inc., (the "Underwriters") along with certain former Tyco and TyCom executives. The complaint asserts causes of action under Sections 11 and 15 of the Securities Act of 1933 and under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder against Tyco, TyCom, Goldman Sachs, Merrill Lynch, Citigroup and certain

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former Tyco and TyCom executives. The complaint alleges the TyCom registration statement and prospectus relating to the sale of TyCom securities were inaccurate, misleading and failed to disclose facts necessary to make the registration statement and prospectus not misleading. Further, the complaint alleges the defendants violated securities laws by making materially false and misleading statements and omissions concerning, among other things, executive compensation, Tyco's and TyCom's finances and TyCom's business prospects. On February 18, 2005, the Company moved to dismiss the consolidated securities class action complaint. On September 2, 2005, the United States District Court for the District of New Hampshire granted in part and denied in part the Company's motion to dismiss. The Court granted the Company's motion to dismiss allegations that the TyCom registration statement and prospectus were misleading to the extent that they failed to disclose alleged looting of Tyco by former senior executives, accounting fraud, analyst conflicts and the participation by James Brennan in the offering, because plaintiff failed to plead that those alleged omissions were disclosed during the class period, with a resultant drop in the value of TyCom stock. However, the Court denied the Company's motion to dismiss with respect to other allegations. On September 19, 2005, plaintiff filed a motion for reconsideration of the Court's September 2, 2005 ruling with respect to Goldman Sachs & Co., Merrill Lynch, Pierce, Fenner & Smith, Incorporated and Citigroup Inc. On January 6, 2006, the Court held that the Goldman Sachs & Co., Merrill Lynch, Pierce, Fenner & Smith, Incorporated and Citigroup Inc. should remain in the case on the claim concerning TyCom's business prospects, but that the Section 11 claim related to alleged looting of Tyco by former senior executives was dismissed as to both the Tyco defendants and the Underwriters because the affirmative defense of lack of loss causation was apparent on the face of the complaint. On January 13, 2006, Tyco International Ltd. and TyCom answered the consolidated securities class action complaint. On March 8, 2006, the plaintiff filed a motion for class certification which is still pending.

        As previously reported in our periodic filings, the Company appealed to the United States Court of Appeals for the First Circuit the decision of the United States District Court for the District of New Hampshire to remand Brazen v. Tyco International Ltd. to the Circuit Court for Cook County, Illinois and Hromyak v. Tyco International Ltd., Goldfarb v. Tyco International Ltd., Mandel v. Tyco International Ltd., Myers v. Tyco International Ltd., Rappold v. Tyco International Ltd., and Schuldt v. Tyco International Ltd. to the Circuit Court for Palm Beach County, Florida. Plaintiffs moved to dismiss the Company's appeal. On December 29, 2004, the United States Court of Appeals for the First Circuit granted plaintiffs' motion and dismissed the Company's appeal. On April 28, 2005, the Company moved in the Circuit Court for Palm Beach County, Florida to stay and to strike the class allegations in Goldfarb, Mandel, Myers, Rappold, and Schuldt. Also on April 28, 2005, the Company moved in the Circuit Court for Palm Beach County, Florida to dismiss Hromyak. On July 8, 2005, the Court granted in part and denied in part the motion to stay and to strike the class allegations in Goldfarb, Mandel, Myers, Rappold, and Schuldt. On August 23, 2005, the Circuit Court granted Tyco's motion to dismiss Hromyak. The Hromyak plaintiffs filed a notice of appeal on September 20, 2005 and briefing has been completed.

        As previously reported in our periodic filings, on March 10, 2005, plaintiff Lionel I. Brazen filed an amended class action complaint in the Circuit Court for Cook County, Illinois purporting to represent a class of purchasers who exchanged shares of Mallinckrodt, Inc. common stock for shares of Tyco common stock pursuant to the Joint Proxy Statement and Prospectus, and the Registration Statement in which it was included, in connection with the October 17, 2000 merger of Tyco and Mallinckrodt, Inc. Plaintiff names as defendants Tyco International Ltd., and certain former Tyco executives and asserts causes of action under Section 11, 12(a)(2) and 15 of the Securities Act of 1933. The amended class action complaint alleges that the defendants made statements in the Registration Statement and the Joint Proxy Statement and Prospectus that were materially false and misleading and failed to disclose material adverse facts regarding the business and operations of Tyco. On April 21, 2005, the Company moved in the Circuit Court for Cook County, Illinois to dismiss or stay or, in the alternative, to strike the class allegations. On July 22, 2005, the court denied the Company's motion.

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Also, on July 22, 2005, the Court granted the motion to dismiss individual defendants Michael A. Ashcroft, Joshua M. Berman, Richard S. Bodman, John F. Fort, III, Stephen W. Foss, James S. Pasman Jr., W. Peter Slusser and Frank E. Walsh, Jr. On August 2, 2005, Tyco filed a motion for a finding pursuant to Supreme Court Rule 308(a), which was denied on August 16, 2005. On August 19, 2005, Tyco filed an interlocutory appeal of the Circuit Court for Cook County Illinois' July 22, 2005 memorandum and order. On December 27, 2005, the Appellate Court of Illinois, First Judicial District, denied Tyco's interlocutory appeal. On January 31, 2006, the Company filed a petition for leave to appeal the decision of the appellate court, but that petition was denied. On January 6, 2006, the plaintiff filed a renewed motion for class certification which was granted. On February 14, 2006, Tyco filed its answer to the complaint.

        As previously reported in our periodic filings, on April 29, 2005, an action was filed against Tyco in the United States District Court for the Southern District of Florida, Stevenson v. Tyco International Ltd., et. al. Plaintiff names as additional defendants our current Chief Executive Officer, Edward Breen, our former Chief Financial Officer, David FitzPatrick, our current Executive Vice President and General Counsel, William Lytton, current members of Tyco's Board of Directors including Dennis Blair, Bruce Gordon, John Krol, Carl McCall, Mackey McDonald, Brendan O'Neill, Sandra Wijnberg, and Jerome York, as well as former members of Tyco's Board of Directors, including Michael Ashcroft, Joshua Berman, Richard Bodman, George Buckley, John Fort, Steven Foss, Wendy Lane, James Pasman, Peter Slusser and Joseph Welch. The complaint asserts causes of action under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder. The complaint alleges that defendants made material misrepresentations that resulted in artificially deflated stock prices. The Judicial Panel on Multidistrict Litigation has transferred this action to the United States District Court for the District of New Hampshire.

        As previously reported in our periodic filings, plaintiff moved to remand Davis v. Kozlowski, an action originally filed on December 9, 2003, from the United States District Court for the District of New Hampshire back to the Circuit Court of Cook County, Illinois. On March 17, 2005, the United States District Court for the District of New Hampshire granted plaintiff's motion to remand and denied defendants' motion to dismiss. On March 31, 2005, the Company moved for reconsideration of the Court's remand order. On January 20, 2006, the Court issued an order terminating the motion for reconsideration, vacating the remand order and staying the case pending the Supreme Court's decision in Merrill Lynch, Pierce, Fenner & Smiths Inc. v. Dabit, 04-1371, which is currently pending before the United States Supreme Court. Following the Supreme Court's decision, the United States District Court for the District of New Hampshire solicited briefs from the parties regarding its impact on the Davis litigation.

        As previously reported in our periodic filings, a complaint was filed on September 2, 2004 in the Court of Common Pleas for Dauphin County, Pennsylvania, Jasin v. Tyco International Ltd., et. al. This pro se plaintiff named as additional defendants Tyco International (US) Inc., L. Dennis Kozlowski, our former Chairman and Chief Executive Officer, Mark H. Swartz, our former Chief Financial Officer and Director, and Juergen W. Gromer, currently President of Tyco Electronics. Plaintiff's complaint asserts causes of action under Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder, as well as Section 11 of the Securities Act of 1933. Claims against Messrs. Kozlowski, Swartz and Gromer are also asserted under Section 14(a) of the Securities Exchange Act of 1934 and Rule 14a-9 promulgated thereunder and Section 20A of the Securities Exchange Act of 1934, as well as Sections 11, 12(a)(2) and 15 of the Securities Act of 1933. Plaintiff also asserts common law fraud, negligent misrepresentation, unfair trade practice, breach of contract, breach of the duty of good faith and fair dealing and violation of Section 1-402 of the Pennsylvania Securities Act of 1972. Tyco has removed the complaint to the United States District Court for the Middle District of Pennsylvania. The Judicial Panel on Multidistrict Litigation transferred this action to

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the United States District Court for the District of New Hampshire. The plaintiff has moved to vacate the conditional transfer order.

Shareholder Derivative Litigation

        As previously reported in our periodic filings, an action was filed on June 7, 2002 in the Supreme Court of the State of New York, Levin v. Kozlowski, alleging that the individually named defendants breached their fiduciary duties, committed waste and mismanagement and engaged in self-dealing in connection with Tyco's accounting practices, individual board members' use of funds, and the financial disclosures of certain mergers and acquisitions. It is further alleged that certain of the individual defendants converted corporate assets for their own use. Plaintiffs seek money damages. Plaintiffs agreed to stay that action pending the resolution of the federal derivative action, which was dismissed by the United States District Court for the District of New Hampshire on October 14, 2004; and the appeal from that ruling was voluntarily dismissed on May 19, 2005. On June 14, 2005, the plaintiffs resumed the Levin action. On September 22, 2005, the Company filed a motion to dismiss the derivative complaint.

ERISA Litigation and Investigation

        As previously reported in our periodic filings, Tyco and certain of our current and former employees, officers and directors, have been named as defendants in eight class actions brought under the Employee Retirement Income Security Act. Two of the actions were filed in the United States District Court for the District of New Hampshire and the six remaining actions were transferred to that court by the Judicial Panel on Multidistrict Litigation. All eight actions have been consolidated in the District Court in New Hampshire. The complaints purported to bring claims on behalf of the Tyco International (US) Inc. Retirement Savings and Investment Plans and the participants therein. On January 12, 2005, the United States District Court for the District of New Hampshire denied, without prejudice, the Company's motion to dismiss certain additional individual defendants from the action. On January 20, 2005, Plaintiffs filed a motion for class certification. On January 27, 2005, the Company answered the plaintiffs' consolidated complaint. Also, on January 28, 2005, the Company and certain individual defendants filed a motion for reconsideration of the Court's January 12, 2005 order, insofar as it related to the Tyco International (US) Inc. Retirement Committee. On May 25, 2005, the Court denied the motion for reconsideration. On July 11, 2005, the Company and certain individual defendants opposed plaintiffs' motion for class certification. The motion is still pending.

        In addition, Tyco and certain of our current and former executives have received requests from the United States Department of Labor for information concerning the administration of the Tyco International (US) Inc. Retirement Savings and Investment Plans. The current focus of the Department's inquiry concerns losses allegedly experienced by the plans due to investments in our shares. The Department of Labor has authority to bring suit on behalf of the plans and their participants against those acting as fiduciaries to the plans for recovery of losses and additional penalties, although it has not informed us of any intention to do so.

Tyco Litigation Against Former Senior Management

        As previously reported in our periodic filings, we have filed a number of civil complaints against certain of our former directors and executive officers for breach of fiduciary duty and other wrongful conduct. In addition, as previously disclosed in our periodic filings, we have filed a civil complaint against our former Chairman and Chief Executive Officer, L. Dennis Kozlowski, and our former Chief Financial Officer, Mark H. Swartz, pursuant to Section 16(b) of the Securities Exchange Act of 1934 for disgorgement of short-swing profits from prohibited transactions in our common shares believed to exceed $40 million. The Judicial Panel on Multidistrict Litigation has transferred each of these actions to the United States District Court for the District of New Hampshire.

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Subpoenas and Document Requests From Governmental Entities

        As previously disclosed in our periodic filings, we and others have received various subpoenas and requests from the Securities and Exchange Commission ("SEC"), the United States Department of Labor, the General Service Administration and others seeking the production of voluminous documents in connection with various investigations into our governance, management, operations, accounting and related controls. We are cooperating with these investigations and are complying with these requests.

        Certain current and former employees in Fire and Security received subpoenas from the SEC's Division of Enforcement seeking testimony related to past accounting practices for the ADT dealer connect fees. As previously reported in our periodic filings, these practices have been discontinued.

        The United States Department of Labor served document subpoenas on Tyco and Fidelity Management Trust Company for documents concerning the administration of the Tyco International (US) Inc. Retirement Savings and Investment Plans. The current focus of the Department's inquiry concerns the losses allegedly experienced by the plans due to investments in our stock. The Department of Labor has authority to bring suit on behalf of the plans and their participants against those acting as fiduciaries to the plans for recovery of losses and additional penalties, although it has not informed us of any intention to do so. The Company is continuing to cooperate with the Department's investigation.

        As previously disclosed, in November 2004, we received an Order from the SEC to report facts and circumstances involving our participation, if any, in the United Nations Oil for Food Program governing sales of Iraqi oil. On January 10, 2005 and November 8, 2005, we responded to the Order and provided information concerning transactions under the United Nations Oil for Food Program. On January 31, 2006, we received a Subpoena from the SEC to produce additional documents and information related to the participation of three of our businesses in the Oil for Food Program. We will respond to that Subpoena and continue to cooperate with the SEC in its investigation of this matter.

        On January 27, 2006, we received from the New Jersey Division of Criminal Justice Office of the Attorney General a subpoena requesting documents related to, among other things, former employees, the use of certain chemicals, and the filing of reports under state and federal environmental reporting laws at the same New Jersey facility sold by Tyco in 2000. The subpoena seeks information for the period from January 1987 to December 2000. We are gathering information responsive to the subpoena and will cooperate fully with the investigators.

Intellectual Property and Antitrust Litigation

        As previously reported in our periodic filings, we are party to a number of patent infringement and antitrust actions. Tyco has assessed the status of these matters and has recorded liabilities related to certain of these matters where appropriate.

Mallinckrodt, Inc. ("Mallinckrodt") and Nellcor Puritan Bennett, Inc. ("Nellcor"), plaintiffs/counter-defendants v. Masimo Corporation ("Masimo") et al., defendants/counter-claimants, is a consolidated patent infringement action filed on June 19, 2000 in the United States District Court for the Central District of California.

        On January 17, 2006, Tyco International Ltd., and its subsidiaries Tyco International (US) Inc., Tyco Healthcare Group LP, Mallinckrodt, Inc., and Nellcor Puritan Bennett, Inc. (collectively "Nellcor") entered into a Settlement Agreement and Release of Claims with Masimo Corporation and Masimo Laboratories, Inc. (the "Settlement") related to the consolidated patent infringement action.

        Under the terms of the settlement, Tyco on behalf of Nellcor, paid Masimo a total of $330 million on January 19, 2006, which represents $265 million in damages in the patent case for sales through January 31, 2006 (after which the infringing products will no longer be sold) and $65 million as an advance royalty for oximetry sales including Nellcor's new 06 technology products from February 1,

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2006 through December 31, 2006. Under the terms of the Settlement, Nellcor receives from Masimo a covenant not to sue on the Nellcor 06 products as well as a termination of all pending patent litigation with Masimo. In March 2011, Nellcor has the option to terminate Masimo's covenant not to sue and the obligation to pay future royalties on Nellcor's current products as well as any next-generation products. In addition, Nellcor shall discontinue making, offering to sell, selling or shipping any products that the court found infringed on the patents held by Masimo, but will continue to provide service and sensors for the previously sold products. Tyco had previously recorded a liability of $277 million related to this matter. The Settlement does not resolve the Masimo antitrust lawsuit or the related consumer antitrust class lawsuits described below.

Masimo Corporation v. Tyco Healthcare Group LP ("Tyco Healthcare") and Mallinckrodt, Inc. is a separate lawsuit filed on May 22, 2002 also pending in the United States District Court for the Central District of California. Tyco Healthcare and Mallinckrodt are subsidiaries of Tyco. In this lawsuit, Masimo alleges violations of antitrust laws against Tyco Healthcare and Mallinckrodt in the markets for pulse oximeter products. Masimo alleges that Tyco Healthcare and Mallinckrodt used their market position to prevent hospitals from purchasing Masimo's pulse oximetry products. Masimo seeks injunctive relief and monetary damages, including treble damages. Trial in this case began on February 22, 2005. The jury returned its verdict on March 21, 2005, and awarded Masimo $140 million in damages. The damages are automatically trebled under the antitrust statute to an award of $420 million. If ultimately successful, Masimo's attorneys are entitled to an award of reasonable fees and costs in addition to the verdict amount. The district court held a hearing on June 28, 2005 regarding post-trial motions.

        On March 22, 2006, the district court issued its Memorandum of Decision regarding the post-trial motions. In the Memorandum, the district court (i) vacated the jury's liability findings on two business practices; (ii) affirmed the jury's liability finding on two other business practices; (iii) vacated the jury's damage award in its entirety; and (iv) ordered a new trial on damages. The district court has not scheduled the new trial on the damages.

        Tyco has assessed the status of this matter and has concluded that it is more likely than not that the remainder of the jury's decision will be overturned, and, further, Tyco intends to vigorously pursue all available means to achieve such reversal. Accordingly, no provision has been made in the Consolidated Financial Statements with respect to this damage award.

        Beginning on August 29, 2005 with Natchitoches Parish Hospital Service District v. Tyco International, Ltd., twelve consumer class actions have been filed against Nellcor in the United States District Court for the Central District of California. The remaining eleven actions are Allied Orthopedic Appliances, Inc. v. Tyco Healthcare Group, LP., and Mallinckrodt Inc. filed on August 29, 2005, Scott Valley Respiratory Home Care v. Tyco Healthcare Group LP, and Mallinckrodt Inc. filed on October 27, 2005, Brooks Memorial Hospital et al v. Tyco Healthcare Group LP filed on October 18, 2005, All Star Oxygen Services, Inc. et al v. Tyco Healthcare Group, et al filed on October 25, 2005, Niagara Falls Memorial Medical Center, et al v. Tyco Healthcare Group LP filed on October 28, 2005, Nicholas H. Noyes Memorial Hospital v. Tyco Healthcare and Mallinckrodt filed on November 4, 2005, North Bay Hospital, Inc. v. Tyco Healthcare Group, et al filed on November 15, 2005, Stephen Skoronski v. Tyco International Ltd, et al filed on November 21, 2005, Abington Memorial Hospital v. Tyco Int'l Ltd,; Tyco Int'l (US) Inc.; Mallinckrodt Inc.; Tyco Healthcare Group LP filed on November 22, 2005, South Jersey Hospital, Inc. v. Tyco International, Ltd., et al, filed on January 24, 2006, and Deborah Heart and Lung Center v. Tyco International, Ltd., et al, filed on January 27, 2006. In all twelve complaints, the putative class representatives, on behalf of themselves and others, seek to recover overcharges they allege they paid for pulse oximetry products as a result of anticompetitive conduct by Nellcor in violation of the federal antitrust laws. The Company will respond to these complaints and intends to vigorously defend the actions.

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        As previously reported in the Company's periodic filings, Applied Medical Resources Corp. ("Applied Medical") v. United States Surgical ("U.S. Surgical") is a patent infringement action that was filed in the United States District Court for the Central District of California in April 1999 in which U.S. Surgical, a subsidiary of Tyco, is the defendant. In February 2002, the district court held that U.S. Surgical's VERSASEAL universal seal system, contained in certain surgical trocar and access devices manufactured by U.S. Surgical, infringed certain of the plaintiff's patents. The district court entered a permanent injunction against U.S. Surgical based upon infringement of one of the three patents involved in the suit. The United States Court of Appeals for the Federal Circuit affirmed the district court's permanent injunction ruling in September 2003 for the VERSASEAL product, which is no longer on the market. In October 2003, the district court ruled in U.S. Surgical's favor, holding that two other patents involved in the case were invalid. A trial on damages for the earlier infringement ruling in the district court concluded on July 27, 2004. The jury awarded Applied Medical $44 million in damages and returned a finding that the earlier infringement was willful, giving the district court discretion to enhance those damages to up to treble the damages awarded to Applied Medical by the jury. On October 1, 2004, the district court issued post-trial rulings that (i) denied U.S. Surgical's motion to set aside the jury's finding on willfulness; and (ii) granted Applied Medical's motion for enhanced damages, enhancing the jury's damages award by 25%, or $11 million. On January 27, 2005, the district court awarded Applied Medical $10 million in costs, prejudgment interest and attorneys' fees. Thus, Applied Medical's total award is $65 million. U.S. Surgical appealed the damages award and the willfulness finding to the Court of Appeals for the Federal Circuit. On January 24, 2006, the Court of Appeals issued a decision affirming the award to Applied Medical. On February 17, 2006, Tyco, on behalf of U.S. Surgical, paid Applied Medical $66 million which includes post-judgment interest which accrued during the appeal. Tyco previously recorded a liability of $66 million related to this matter.

        On July 31, 2003, Applied Medical filed another patent infringement suit against U.S. Surgical in the United States District Court for the Central District of California. The complaint alleges that U.S. Surgical's VERSASEAL Plus trocar product infringes Applied Medical's U.S. Patent No. 5,385,533. Applied Medical seeks injunctive relief and unspecified monetary damages, including enhanced damages for alleged willful infringement. Applied Medical filed a motion for a preliminary injunction, which the district court denied on December 23, 2003. On February 7, 2005, the district court granted U.S. Surgical's motion for summary judgment. Applied Medical is appealing the summary judgment ruling. Briefing on Applied Medical's appeal has concluded and oral argument took place on February 6, 2006.

Environmental Litigation

        As previously disclosed, we have been in discussions with the U.S. Environmental Protection Agency and the New Jersey Department of Environmental Protection regarding historic environmental compliance issues at a facility sold by Tyco in 2000. In a letter dated February 10, 2006, the U.S. Environmental Protection Agency proposed a penalty of $1,750,000 for alleged violations at this facility. However, we do not believe that any such monetary sanctions will have a material adverse effect on the Company's financial position, results of operations or cash flows.

        In January 2006, the United States Environmental Protection Agency, Region 1, issued an Administrative Complaint to US Surgical Corporation, a subsidiary of Tyco, seeking penalties of $165,000 for alleged violations of the agency's Stratospheric Ozone Protection regulations. The complaint alleges violations of detailed regulatory requirements for refrigeration equipment containing ozone depleting substances, relating to facts and circumstances that took place in 2001, 2002, and January of 2003. The Company has discussed this matter in detail with the Environmental Protection Agency and is seeking a negotiated resolution. The proposed monetary penalties will not have a material adverse effect on the Company's financial position, results of operations or cash flows.

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Asbestos Matters

        As previously reported in our periodic filings, Tyco and some of its subsidiaries are named as defendants in personal injury lawsuits based on alleged exposure to asbestos-containing materials. The majority of these cases have been filed against subsidiaries in Healthcare and Engineered Products and Services. Each case typically names between dozens to hundreds of corporate defendants. The Company will continue to vigorously defend these lawsuits and the Company has not suffered an adverse verdict in a trial court proceeding related to asbestos claims. When appropriate, the Company settles claims. However, the total amount paid to date to settle and defend all asbestos claims has been immaterial. As of March 31, 2006 there were approximately 14,500 asbestos liability cases pending against the Company and our subsidiaries.

Other Matters

Earth Tech v. City of Phoenix is a contract dispute arising from Earth Tech's contract with the City of Phoenix, Arizona for expansion of the City's 91^st Avenue Waste Water Treatment Plant. On December 21, 2005, Earth Tech filed a lawsuit against the City of Phoenix in the Maricopa County Superior Court alleging $3 million in damages plus interest for the City's failure to pay dewatering and computer systems costs related to the 91^st Avenue project. After the City rejected Earth Tech's administrative claim against the City, Earth Tech filed and served a First Amended Complaint upon the City of Phoenix. In its First Amended Complaint, Earth Tech alleged eighteen causes of action and requested the following: (i) a recovery of at least $73 million for the value of the services performed by Earth Tech in connection with the contract; (ii) a rescission of the contract; (iii) an equitable adjustment of the Contract price for additional dewatering services and the Computer Control System; and (iv) costs for demobilization and termination of the contract. The City of Phoenix's Answer to the First Amended Complaint is due on May 18, 2006.

        On December 29, 2005, the City of Phoenix filed a lawsuit against Earth Tech, Inc., its surety, Federal Insurance Company and other unnamed parties in the Maricopa County Superior Court, The City of Phoenix v. Earth Tech, Inc., Federal Insurance Company and John Does 1-50. The lawsuit is in connection with the City of Phoenix's termination on August 12, 2005 of Earth Tech's contract with the City of Phoenix, Arizona for expansion of the City's 91^st Avenue Waste Water Treatment Plant. The City alleges the following causes of action: (i) Earth Tech breached its Pre-Construction Services and Construction Management at Risk Contracts; (ii) Earth Tech did not properly, reasonably or timely manage, supervise or inspect the work under the Contracts; (iii) Federal Insurance breached the terms and conditions of the performance bond; and (iv) Federal Insurance failed to investigate the City's Bond Claims. The City requested unspecified general, consequential, incidental, special and liquidated damages plus interest as its relief. On February 8, 2006, Earth Tech filed a Motion to Dismiss the City's Complaint in which Federal Insurance Company joined. The Court set a hearing date for the motions of May 22, 2006.

Item 1A.    Risk Factors

You should carefully consider the risks described below before investing in our publicly traded securities. The risks described below are not the only ones facing us. Our business is also subject to the risks that affect many other companies, such as competition, technological obsolescence, labor relations, general economic conditions, geopolitical events and international operations. Additional risks not currently known to us or that we currently believe are immaterial also may impair our business operations and our liquidity.

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Risks Relating to the Proposed Separation

The cost to complete the transaction could be significant.

        Management estimates that the total cost to complete the Proposed Separation will approximate $1.0 billion. However, actual costs could exceed that estimate that could have a materially negative impact on the operating results and cash flows of the Company. Also, there is no guarantee that the Proposed Separation will be finalized, since completion is subject to a number of factors and conditions, including:

•

changes in business, political and economic conditions in the U.S. and in other countries in which the Company currently operates;



•

changes in governmental regulations and policies and actions of regulatory bodies;



•

changes in operating performance of the Company;



•

required changes to existing financings, and changes in credit ratings, including those that may result from the Proposed Separation;



•

the Company's ability to obtain the financing necessary to consummate the Proposed Separation; and



•

the Company's ability to satisfy certain conditions precedent, including final approval by the Tyco Board of Directors, receipt of a tax opinion of counsel and the filing and effectiveness of registration statements with the Securities and Exchange Commission ("SEC").

Increased demands on the Company's management team as a result of the Proposed Separation could distract management's attention from operating performance in the near term.

        Management estimates that the Proposed Separation will be completed in the first calendar quarter of 2007. The complexity of the transaction will require a substantial amount of resources, as well as the use of several cross-functional project teams. The Company has developed a resource plan to meet such demands; however, there is no guarantee that the business will be uninterrupted during the transition period.

The credit ratings of each of the three independent companies may be lower than that of the current consolidated entity.

        Credit agencies will have to issue credit ratings for each of the three independent companies. Debt currently outstanding will be allocated or assigned to each of the three independent public companies. There is currently no plan to raise additional capital through an initial public offering.

Risks Relating to Actions of Tyco's Former Senior Corporate Management

Pending litigation could have a material adverse effect on our liquidity and financial condition.

        As a result of actions taken by our former senior corporate management, Tyco, some members of our former senior corporate management, current and former members of our Board of Directors and our current Chief Executive Officer, former Chief Financial Officer and current General Counsel are named defendants in a number of purported class actions alleging violations of certain disclosure provisions of the federal securities laws. Tyco, certain of our current and former employees, some members of our former senior corporate management and some former members of the Board of Directors of Tyco International (US), Inc. also are named as defendants in several Employee Retirement Income Security Act ("ERISA") class actions. In addition, some members of our former senior corporate management are subject to an SEC inquiry, and some members of our former senior corporate management are named as defendants in criminal cases prosecuted by the District Attorney of New York County. The findings and outcomes of the SEC inquiry may affect the course of the

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purported securities class actions and ERISA class actions pending against Tyco. We are generally obligated to indemnify our directors and officers and our former directors and officers who are also named as defendants in some or all of these matters to the extent required by Bermuda law. In addition, our insurance carriers may decline coverage, or our coverage may be insufficient to cover our expenses and liability, in some or all of these matters. We are unable at this time to estimate what our ultimate liability in these matters may be, and it is possible that we will be required to pay judgments or settlements and incur expenses, in excess of any insurance coverage, in aggregate amounts that would have a material adverse effect on our financial position, results of operations or cash flows. At this time, it is not possible to estimate the amount of loss or probable losses, if any, that might result from an adverse resolution of these matters.

Continued scrutiny resulting from ongoing governmental investigations may have an adverse effect on our business.

        We and others have received subpoenas and requests from the SEC's Division of Enforcement, the United States Department of Labor, the General Service Administration and others seeking the production of voluminous documents in connection with various investigations into our governance, management, operations, accounting and related controls. Certain current and former employees in Fire and Security received subpoenas from the SEC's Division of Enforcement seeking testimony related to past accounting practices regarding the ADT dealer connect fees. As previously reported in our periodic filings, these practices have been discontinued. The Department of Labor is investigating Tyco and the administrators of certain of our benefit plans. At this time, we cannot predict when these investigations will be completed, nor can we predict what the results of these investigations may be. It is possible that we will be required to pay material fines, consent to injunctions on future conduct, lose the ability to conduct business with government instrumentalities (which in turn could negatively impact our business with non-governmental customers) or suffer other penalties, each of which could have a material adverse effect on our business. We cannot provide assurance that the effects and results of these or other investigations will not be material and adverse to our business, financial condition, results of operations or cash flows.

Examinations and audits by tax authorities, including the IRS, could result in additional tax payments for prior periods.

        The Company and its subsidiaries' income tax returns are periodically examined by various tax authorities. In connection with such examinations, tax authorities, including the United States Internal Revenue Service ("IRS"), have raised issues and proposed tax adjustments. The Company is reviewing and contesting certain of the proposed tax adjustments. Amounts related to these tax adjustments and other tax contingencies that management has assessed as probable and estimable have been recorded through the income tax provision, equity or goodwill, as appropriate. The calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax regulations in a multitude of jurisdictions across our global operations. We recognize potential liabilities and record tax liabilities for anticipated tax audit issues in the United States and other tax jurisdictions based on our estimate of whether, and the extent to which, additional income taxes will be due. These tax liabilities are reflected net of related tax loss carryforwards. We adjust these liabilities in light of changing facts and circumstances; however, due to the complexity of some of these uncertainties, the ultimate resolution may result in a payment that is materially different from our current estimate of the tax liabilities.

        During the three months ended March 31, 2006, the IRS continued to audit the years 1997 through 2000. In 2004, the Company submitted to the IRS proposed adjustments to its 1997 through 2000 U.S. federal income tax returns. During the three months ended March 31, 2006, the IRS and the Company agreed to several of the proposed adjustments and also agreed to resolution of certain legacy

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tax matters. These adjustments did not have a material impact on the financial condition, results of operations or cash flows of the Company.

        The Company is in the process of preparing proposed amendments to prior period U.S. federal income tax returns for additional periods. The proposed amendments are not expected to have a material adverse impact on the financial condition, results of operations or cash flows of the Company.

Material adverse legal judgments, fines, penalties or settlements could adversely affect our financial health and prevent us from fulfilling our obligations under our outstanding indebtedness.

        We estimate that our available cash and our cash flow from operations will be adequate to fund our operations and service our debt for the foreseeable future. In making this estimate, we have not assumed the need to make any material payments in connection with our pending litigation or investigations. Any material adverse legal judgments, fines, penalties or settlements arising from our pending investigations and litigation could require additional funding. If such developments require us to obtain additional funding, we cannot provide assurance that we will be able to obtain the additional funding that we need on commercially reasonable terms or at all, which could have a material adverse effect on our results of operations and cash flows.

        Such an outcome could have important consequences to you. For example, it could:

•

require us to dedicate a substantial portion of our cash flow from operations to payments on our indebtedness, thereby reducing the availability of our cash flow to fund working capital, capital expenditures, research and development efforts and other general corporate purposes, including debt reduction or dividend payments;



•

increase our vulnerability to general adverse economic and industry conditions;



•

limit our flexibility in planning for, or reacting to, changes in our businesses and the industries in which we operate;



•

restrict our ability to introduce new technologies or exploit business opportunities;



•

make it more difficult for us to satisfy our payment obligations with respect to our outstanding indebtedness; and



•

increase the difficulty and/or cost to us of refinancing our indebtedness.

Additional negative publicity may adversely affect our business.

        As a result of actions taken by our former senior corporate management, Tyco was the subject of continuing negative publicity focusing on these actions. This negative publicity contributed to significant declines in the prices of our publicly traded securities in 2002 and brought increased regulatory scrutiny upon us. Additional negative publicity related to former senior corporate management's actions could have a material adverse effect on our results of operations and cash flows and the market price of our publicly traded securities.

Our senior corporate management team is required to devote significant attention to matters arising from actions of prior management.

        We replaced our senior corporate executives with a new team during 2002 through 2004, and all of the former members of our Board of Directors determined not to stand for reelection in March 2003. A new Board of Directors was elected at our annual general meeting of shareholders in March 2003. We cannot provide assurance that this major restructuring of our Board of Directors and senior management team, and the accompanying distractions related to matters arising from the actions of prior management will not adversely affect our results of operations.

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Risks Relating to Our Businesses

Cyclical industry and economic conditions have affected and may continue to adversely affect our financial condition and results of operations.

        Our operating results in some of our segments are affected adversely by the general cyclical pattern of the industries in which they operate. For example, demand for the products and services of Fire and Security and Engineered Products and Services is significantly affected by levels of commercial construction and consumer and business discretionary spending. Also, the electronic components business within Electronics is heavily dependent on the end markets it serves and therefore can be affected by the demand patterns of these markets, which could impact the margins in this business. This cyclical impact can be amplified because some of our businesses purchase products from other of our businesses. For example, Fire and Security purchases certain products sold by Engineered Products and Services. Therefore, a drop in demand for our fire prevention products due to lower new residential or office construction or other factors can cause a drop in demand for certain of our products sold by Engineered Products and Services.

Our operations expose us to the risk of material environmental liabilities, litigation and violations.

        We are subject to numerous foreign, federal, state and local environmental protection and health and safety laws governing, among other things:

•

the generation, storage, use and transportation of hazardous materials;



•

emissions or discharges of substances into the environment; and



•

the health and safety of our employees.

There can be no assurances that we have been or will be at all times in compliance with environmental and health and safety laws. If we violate these laws, we could be fined, criminally charged or otherwise sanctioned by regulators.

        Certain environmental laws assess liability on current or previous owners or operators of real property for the cost of removal or remediation of hazardous substances at their properties or at properties at which they have disposed of hazardous substances. In addition to cleanup actions brought by governmental authorities, private parties could bring personal injury or other claims due to the presence of, or exposure to, hazardous substances.

        We have received notification from the United States Environmental Protection Agency and from state environmental agencies, that conditions at a number of sites where we and others disposed of hazardous substances require cleanup and other possible remedial action and may require that we reimburse the government or otherwise pay for the cost of cleanup of those sites and/or for natural resource damages. We have projects underway at a number of current and former manufacturing facilities to investigate and remediate environmental contamination resulting from past operations. These projects relate to a variety of activities, including:

•

radioactive materials decontamination and decommissioning;



•

solvent, metal and other hazardous substance contamination cleanup; and



•

oil spill equipment upgrades and replacement.

These projects involve both remediation expenses and capital improvements. In addition, we remain responsible for certain environmental issues at manufacturing locations previously sold by us.

        The ultimate cost of cleanup at disposal sites and manufacturing facilities is difficult to predict given uncertainties regarding the extent of the required cleanup, the interpretation of applicable laws and regulations and alternative cleanup methods. Based upon our experience, current information and

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applicable laws, we believe that it is probable that we would incur remedial costs (including asset retirement obligations) of approximately $276 million, of which $32 million is included in accrued expenses and other current liabilities and $244 million is included in other long-term liabilities on the Consolidated Balance Sheets. Environmental laws are complex, change frequently and have tended to become more stringent over time. While we have budgeted for future capital and operating expenditures to maintain compliance with such laws, we cannot provide assurance that our costs of complying with current or future environmental protection and health and safety laws, or our liabilities arising from past or future releases of, or exposures to, hazardous substances will not exceed our estimates or adversely affect our financial condition and results of operations or that we will not be subject to additional environmental claims for personal injury or cleanup in the future based on our past, present or future business activities.

We may be required to recognize additional impairment charges.

        Pursuant to accounting principles generally accepted in the United States, we are required to periodically assess our goodwill, intangibles and other long-lived assets to determine if they are impaired. Disruptions to our business, end market conditions and protracted economic weakness, unexpected significant declines in operating results of reporting units, divestitures, the Proposed Separation plan and market capitalization declines may result in additional charges for goodwill and other asset impairments. Future impairment charges could substantially affect our reported earnings in the periods of such charges. In addition, such charges would reduce our consolidated net worth and our shareholders' equity, increasing our debt-to-total-capitalization ratio. Such reduction in consolidated net worth and increase in debt as a percentage of total capitalization could result in a default under our credit facilities.

Foreign currency exchange rate, commodity price and interest rate fluctuations may adversely affect our results.

        We are exposed to a variety of market risks, including the effects of changes in foreign currency exchange rates, commodity prices and interest rates. See Part I, Item 3. Quantitative and Qualitative Disclosures About Market Risk.

        Our net revenue derived from sales in non-U.S. markets for 2005 was 50.6% of our total revenue, and we expect revenue from non-U.S. markets to continue to represent a significant portion of our net revenue. Therefore, when the U.S. Dollar strengthens in relation to the foreign currencies of the countries where we sell our products, such as the Euro, our U.S. Dollar reported revenue and income will decrease. Changes in the relative values of currencies occur from time to time and may, in some instances, have a significant effect on our results of operations. Our financial statements reflect recalculations of items denominated in non-U.S. currencies to U.S. Dollars, our functional currency.

        We are a large buyer of steel in the United States. We are also a large buyer of other commodities, including resin, copper, brass, gold, paper, pulp and cotton. Volatility in the prices of these commodities could increase the costs of our products and services. We may not be able to pass on these costs to our customers and this could have a material adverse effect on our results of operations and cash flows.

        We monitor these exposures as an integral part of our overall risk management program. In some cases, we purchase hedges or enter into contracts to insulate our results of operations from these fluctuations. Nevertheless, changes in currency exchange rates, commodity prices and interest rates may have a material adverse effect on our results of operations and financial condition.

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We are named as a defendant to a variety of litigation in the course of our business that could cause a material adverse effect on our results of operations and financial condition.

        In the ordinary course of business, we are named as a defendant in a significant amount of litigation, including litigation alleging the infringement of intellectual property rights, litigation alleging anti-competitive behavior and product liability litigation. In certain circumstances, patent infringement and anti-trust laws permit successful plaintiffs to recover treble damages. In addition, our Healthcare business is subject to regulation and potential litigation. The defense of these lawsuits may divert our management's attention, and we may incur significant expenses in defending these lawsuits. In addition, we may be required to pay damage awards or settlements, or become subject to injunctions or other equitable remedies, that could cause a material adverse effect on our financial condition and results of operations.

Our Healthcare business is subject to extensive regulation by the government and failure to comply with those regulations could have a material adverse effect on our results of operations and financial condition.

        The United States Food and Drug Administration regulates the approval, manufacturing and sale and marketing of many of our healthcare products. Failure to comply with current Good Manufacturing Practices and other applicable regulations and quality assurance guidelines could lead, and have led, to temporary manufacturing shutdowns, product recalls, product shortages or delays in product manufacturing. Efficacy or safety concerns, an increase in trends of adverse events in the marketplace, and/or manufacturing quality issues with respect to our products could lead to product recalls, withdrawals or declining sales.

Our ADT business has generally experienced higher rates of customer attrition, which may reduce our future revenue and has caused us to change the useful life of accounts, increasing our depreciation and amortization expense.

        Attrition rates for customers in our global electronic security services business were 14.4% and 14.8% on a trailing 12-month basis as of March 31, 2006 and September 30, 2005, respectively. Although the attrition rate has been declining, if attrition rates were to trend upward, ADT's recurring revenue and results of operations will be adversely affected. Tyco amortizes the costs of ADT's contracts and related customer relationships purchased through the ADT dealer program based on the estimated life of the customer relationships. Internally generated residential and commercial account pools are similarly amortized. If the attrition rates were to rise Tyco may be required to accelerate the amortization of the costs which could cause a material adverse effect on our financial condition, results of operations and cash flows.

Our reputation and our ability to do business may be impaired by improper conduct by any of our employees or agents or those of our subsidiaries.

        Tyco and its subsidiaries operate in many parts of the world that have experienced governmental corruption to some degree, including, but not limited to, Asia, Latin America and Europe. Tyco's policy mandates strict compliance with the United States Foreign Corrupt Practices Act, as amended, and local laws prohibiting corrupt payments to government officials. Nonetheless, we cannot provide assurance that our internal control policies and procedures will always protect us from reckless or criminal acts committed by our employees that would violate U.S. and/or foreign laws, including the laws governing payments to government officials. These improper actions, however, could subject the Company to civil or criminal penalties, including substantial monetary fines, as well as disgorgement, against us or our subsidiaries and could damage our reputation and, therefore, our ability to do business.

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        From time to time Tyco receives information alleging improper conduct of Tyco employees, agents, and/or distributors, including conduct involving potentially improper payments to foreign government officials. Tyco's policy is to investigate that information and respond appropriately, including, if warranted, taking remedial control measures and reporting its findings to relevant law enforcement authorities.

Covenants in our debt instruments may adversely affect us.

        Our bank credit agreements contain financial and other covenants, such as a limit on the ratio of debt to earnings before interest, taxes, depreciation and amortization, minimum levels of net worth, and limits on incurrence of liens. We have a synthetic lease facility with other covenants, including interest coverage and leverage ratios. Our outstanding indentures contain customary covenants including limits on negative pledges, subsidiary debt and sale/leaseback transactions.

        Although we believe none of these covenants are presently restrictive to our operations, our ability to meet the financial covenants can be affected by events beyond our control, and we cannot provide assurance that we will meet those tests. A breach of any of these covenants could result in a default under our credit agreements or indentures. Upon the occurrence of an event of default under any of our credit facilities or indentures, the lenders or trustees could elect to declare all amounts outstanding thereunder to be immediately due and payable and terminate all commitments to extend further credit. If the lenders or trustees accelerate the repayment of borrowings, we cannot provide assurance that we will have sufficient assets to repay our credit facilities and our other indebtedness. Acceleration of any obligation under any of our material debt instruments will permit the holders of our other material debt to accelerate their obligations. See "Liquidity and Capital Resources—Capitalization".

Downgrades of our debt ratings would adversely affect us.

        Certain downgrades by Moody's and S&P may increase our cost of capital and make it more difficult for us to obtain new financing.

Risks Relating to Our Jurisdiction of Incorporation

Legislation and negative publicity regarding Bermuda companies could increase our tax burden and affect our operating results.

Legislation Relating to Government Contracts

        We continue to assess the potential impact of various U.S. federal and state legislative proposals that would deny government contracts to U.S. companies that move their corporate location abroad. The legislative proposals could cover the 1997 acquisition of Tyco International Ltd., a Massachusetts corporation, by ADT Limited (a public company that had been located in Bermuda since the 1980's with origins dating back to the United Kingdom since the early 1900's), as a result of which ADT changed its name to Tyco International Ltd. and became the parent to the Tyco group.

        In 2003, the State of California adopted legislation intended to limit the eligibility of certain Bermuda and other foreign-chartered companies to participate in certain state contracts. To date, Tyco companies have requested waivers which have been granted or are still pending, with certain requests having been denied. However, there is no reliable process for how that waiver authority will be exercised and how the provision for such waivers will affect Tyco's business.

        In addition, the U.S. federal government and various other states and municipalities have proposed or may propose legislation that would deny government contracts to U.S. companies that move their corporate location abroad. We are unable to predict with any level of certainty the likelihood or final form in which any such proposed legislation might become law, the nature of regulations that may be promulgated under any future legislative enactments, or the impact such enactments and increased regulatory scrutiny may have on our business.

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        Tyco's revenue related to direct sales to the U.S. federal government and the State of California accounted for less than 2.0% and 0.1%, respectively, of our total net revenue for 2005 and we expect those levels to continue. We are unable to predict, however, whether the final form of the proposed legislation discussed above would also affect Tyco's indirect sales to the U.S. federal or state governments or the willingness of Tyco's non-governmental customers to do business with us. As a result of these uncertainties, we are unable to assess the potential impact on us of any proposed legislation in this area and can provide no assurance that the impact will not be materially adverse.

Tax Legislation

        The United States Congress has in the past considered legislation affecting the tax treatment of U.S. companies that have undertaken certain types of expatriation transactions. In October 2004, the United States Congress enacted such legislation, which did not, however, retroactively apply to the 1997 acquisition of Tyco International Ltd. by ADT Limited. Legislation passed by the U.S. Senate on November 18, 2005 would modify parts of the American Jobs Creation Act of 2004, but would not retroactively apply to the 1997 acquisition of Tyco International Ltd. by ADT Limited. We expect various tax proposals to be introduced in the United States Congress in the future and cannot provide assurance that these proposals would not have adverse effects on Tyco if enacted. Such adverse effects could include substantially reducing the tax benefits of our corporate structure, materially increasing our tax burden or otherwise adversely affecting our business.

Negative Publicity

        There is continuing negative publicity regarding, and criticism of, U.S. companies' use of, or relocation to, offshore jurisdictions, including Bermuda. As a Bermuda company, this negative publicity could harm our reputation and impair our ability to generate new business if companies or government agencies decline to do business with us as a result of the negative public image of Bermuda companies or the possibility of our customers receiving negative media attention from doing business with a Bermuda company.

Bermuda law differs from the laws in effect in the United States and may afford less protection to holders of our securities.

        We are organized under the laws of Bermuda. It may not be possible to enforce court judgments obtained in the United States against us in Bermuda based on the civil liability provisions of the U.S. federal or state securities laws. In addition, there is some doubt as to whether the courts of Bermuda would recognize or enforce judgments of U.S. courts obtained against us or our directors or officers based on the civil liabilities provisions of the U.S. federal or state securities laws or hear actions against us or those persons based on those laws. We have been advised that the United States and Bermuda do not currently have a treaty providing for the reciprocal recognition and enforcement of judgments in civil and commercial matters. Therefore, a final judgment for the payment of money rendered by any U.S. federal or state court based on civil liability, whether or not based solely on U.S. federal or state securities laws, would not automatically be enforceable in Bermuda.

        As a Bermuda company, Tyco is governed by the Companies Act 1981 of Bermuda, which differs in some material respects from laws generally applicable to United States corporations and shareholders, including, among others, differences relating to interested director and officer transactions, shareholder lawsuits and indemnification. Likewise, the duties of directors and officers of a Bermuda company are generally owed to the company only. Shareholders of Bermuda companies do not generally have a personal right of action against directors or officers of the company and may only exercise such rights of action on behalf of the company in limited circumstances. Under Bermuda law, a company may also agree to indemnify directors and officers for any personal liability, not involving fraud or dishonesty, incurred in relation to the company. Thus, holders of Tyco securities may have

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more difficulty protecting their interests than would holders of securities of a corporation incorporated in a jurisdiction of the United States.

Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds

Issuer Purchases of Equity Securities

Period	Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Number of Shares that May Yet Be Purchased Under Publicly Announced Plans or Programs
12/31/05–1/27/06	—		—	—	—
1/28/06–3/3/06	—		—	—	—
3/4/06–3/31/06	22,176,037	$	26.81	22,117,000	—

        The transactions described in the table above represent the repurchase of common shares on the NYSE as part of the $1.5 billion share repurchase program approved by the Board of Directors in July 2005. The average price paid per share is calculated by dividing the total cash paid for the shares by the total number of shares repurchased. As of March 31, 2006, $391 million remained outstanding under this share repurchase program. In April 2006 the Company completed the $1.5 billion share repurchase plan and the Board of Directors has approved a new $2.0 billion share repurchase program. The Company, through an affiliate, also acquires shares from certain employees in order to satisfy employee tax withholding requirements in connection with the vesting of restricted shares. Approximately 60,000 shares were acquired in these vesting-related transactions outside of the share repurchase program during the quarter ended March 31, 2006.

Item 3.    Defaults Upon Senior Securities

        None.

Item 4.    Submission of Matters to a Vote of Security Holders

        The 2006 Annual General Meeting of Shareholders (the "Meeting") of the Company was held on March 9, 2006.

        At the Meeting, a total of 1,670,948,860 common shares (82.17% of outstanding common shares as of the record date, January 9, 2006) were voted. The four Company proposals submitted at the Meeting were passed as described below.

        The following is a brief description of each matter voted upon at the Meeting. Percentages indicated below reflect the percentage of the total number of common shares voted at the Meeting.

Proposal 1a. A proposal to set the maximum number of directors at 12:

        A total of 1,646,258,696 shares (98.52%) were voted for and 12,142,619 shares (0.73%) were voted against this proposal. There were 12,547,544 abstentions and zero broker non-votes.

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Proposal 1b. To elect the Board of Directors of the Company:

        The following is a tabulation of the votes submitted in respect of Proposal 1b of the Proxy Statement. Proxies giving discretion to the chairman of the Meeting were voted in favor of each candidate. There were zero broker non-votes.

	NUMBER OF VOTES FOR	% OF QUORUM		NUMBER OF VOTES WITHHELD
Dennis C. Blair	1,648,577,756	98.66	%	22,371,097
Edward D. Breen	1,641,517,487	98.24	%	29,431,366
Brian Duperreault	1,646,909,905	98.56	%	24,038,948
Bruce S. Gordon	1,648,452,352	98.65	%	22,496,501
Rajiv L. Gupta	1,648,533,012	98.66	%	22,415,841
John A. Krol	1,615,696,839	96.69	%	55,252,014
Mackey J. McDonald	1,341,478,906	80.28	%	329,469,947
H. Carl McCall	1,645,603,852	98.48	%	25,345,001
Brendan R. O'Neill	1,647,987,057	98.63	%	22,961,796
Sandra S. Wijnberg	1,647,498,613	98.60	%	23,450,240
Jerome B. York	1,648,495,128	98.66	%	22,453,725

Proposal 1c. A proposal to authorize the board of directors to appoint an additional director to fill the vacancy proposed to be created on the board:

        A total of 1,646,137,525 shares (98.52%) were voted for and 11,699,955 shares (0.70%) were voted against this proposal. There were 13,111,380 abstentions and zero broker non-votes.

Proposal 2. A proposal to re-appoint Deloitte & Touche LLP as the independent auditors and to authorize the Audit Committee to set the auditors' remuneration:

        A total of 1,655,028,103 shares (99.05%) were voted for and 3,711,967 shares (0.22%) were voted against this proposal. There were 12,208,790 abstentions and zero broker non-votes.

Item 5.    Other Information

        None.

Item 6.    Exhibits

Exhibit Number	Exhibit
10.1	Retention Agreement between Dr. Juergen W. Gromer, President and Vice Chairman of Tyco Electronics and Tyco International Ltd. dated as of March 22, 2006.
10.2	Settlement Agreement and Release of Claims dated as of January 17, 2006, between Masimo Corporation and Masimo Laboratories, Inc., and Nellcor Puritan Bennett, Inc., Mallinckrodt, Inc., Tyco Healthcare Group, LP Tyco International Ltd., and Tyco International (US) Inc.
10.3	Amendment to Settlement Agreement and Release of Claims dated as of January 24, 2006, between Masimo Corporation and Masimo Laboratories, Inc., and Nellcor Puritan Bennett, Inc., Mallinckrodt Inc., Tyco Healthcare Group LP., Tyco International Ltd, and Tyco International (US) Inc.
10.4	Final Judgment of Complaint filed by Securities and Exchange Commission versus Tyco International Ltd., in the United States District Court for the Southern District of New York dated as of April 25, 2006.
31.1	Certification by the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).
31.2	Certification by the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).
32.1	Certification by the Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith).

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SIGNATURES

        Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

TYCO INTERNATIONAL LTD.
By:	/s/  CHRISTOPHER J. COUGHLIN Christopher J. Coughlin Executive Vice President and Chief Financial Officer (Principal Financial Officer)

Date: May 9, 2006

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QuickLinks

TYCO INTERNATIONAL LTD. INDEX TO FORM 10-Q
PART I. FINANCIAL INFORMATION
TYCO INTERNATIONAL LTD. CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) (in millions, except per share data)
TYCO INTERNATIONAL LTD. CONSOLIDATED BALANCE SHEETS (UNAUDITED) (in millions, except share data)
TYCO INTERNATIONAL LTD. CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (in millions)
TYCO INTERNATIONAL LTD. CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (UNAUDITED) For the Six Months Ended March 31, 2006 and April 1, 2005 (in millions)
TYCO INTERNATIONAL LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
CONDENSED CONSOLIDATING STATEMENT OF INCOME For the Quarter Ended March 31, 2006 (in millions)
CONDENSED CONSOLIDATING STATEMENT OF INCOME For the Quarter Ended April 1, 2005 (in millions)
CONDENSED CONSOLIDATING STATEMENT OF INCOME For the Six Months Ended March 31, 2006 (in millions)
CONDENSED CONSOLIDATING STATEMENT OF INCOME For the Six Months Ended April 1, 2005 (in millions)
CONDENSED CONSOLIDATING BALANCE SHEET March 31, 2006 (in millions)
CONDENSED CONSOLIDATING BALANCE SHEET September 30, 2005 (in millions)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS For the Six Months Ended March 31, 2006 (in millions)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS For the Six Months Ended April 1, 2005 (in millions)
Results of Operations
Liquidity and Capital Resources
Commitments and Contingencies
Off-Balance Sheet Arrangements
Accounting Pronouncements
Forward-Looking Information

Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

Item 1A. Risk Factors

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits

SIGNATURES

EX-10.1

Exhibit 10.1

March 22, 2006

Dr. Juergen W. Gromer

President and Vice Chairman

Tyco Electronics

2901 Fulling Mill Road

Middletown, Pa. 17057

Dear Juergen:

As you know, Tyco International Ltd. (which, along with its subsidiaries and affiliated companies will be referred to as “Tyco”) recently announced that it intends to separate its business operations into three publicly-traded stand-alone companies.  As part of this plan, the Tyco Electronics business will be separated into a publicly-traded stand-alone company (the “Transaction”).

You currently serve as President and Vice Chairman of Tyco Electronics and your relationship with Tyco is governed by two agreements: one with Tyco Electronics Logistics AG effective October 1, 1999 and the other with Tyco Electronics AMP GmbH, effective February 27, 1990 and April 10, 1990 (the “Services Agreements”).  Recognizing the critical role that you will play in the future success of the Tyco Electronics business, particularly after it is separated into a stand-alone company (which stand-alone company and its subsidiaries and affiliated companies will be referred to as “Electronics” on and after the effective date of the Transaction), the Board of Directors of Tyco recently approved a special retention arrangement for you.  The terms of the retention arrangement are described below in this letter agreement (the “Agreement”).

1.             Retention Award

1.1.

You will be eligible to receive a special one-time bonus (the “Retention Award”) if you continue to provide services to Electronics under the Services Agreements ( as such Agreements may be amended or replaced in the future from time to time) until the second anniversary of the date on which the Transaction is effective (the “Closing Date”).  No Retention Award will be paid if (i) you terminate your services with Tyco or Electronics, as applicable, by notice prior to the Retention Payment Date (as defined below) or as a result of your resignation (or other similar notice of termination is provided by you), (ii) notice of termination is given by Tyco or Electronics, as applicable, for Cause, (iii) Tyco publicly announces its intent not to consummate the Transaction.

1.2

For purposes of this Agreement, Cause means (i) your substantial failure or refusal to perform the duties and responsibilities of your job as required by Electronics, (ii) violation of any fiduciary duty owed to Electronics, (iii) conviction of a crime, (iv) dishonesty, (v) theft, (vi) continued or severe violation of an Electronics’ rule or policy, or (vii) other egregious conduct, that has or could have a serious and detrimental impact

on Electronics and its employees.  The Compensation Committee of the Board of Directors of Tyco or Electronics, as applicable, in its sole and absolute discretion, shall determine whether the notice of termination is for reason of Cause.

The Retention Award will be paid in a lump sum in an amount equal to two times your base salary and target annual bonus, both as in effect as of the Retention Payment Date.  The payment will become payable at the end of the month in which the second anniversary of the closing of the Transaction takes place (“Retention Payment Date”.)

1.3

If your services are terminated by Tyco or Electronics, as applicable, before the Retention Payment Date (i) for reasons other than Cause or (ii) as a result of your death or disability, then you or Estate, as applicable, will be entitled to receive the Retention Award which will be paid not later than 30 days after your termination date. The amount of any severance, notice pay, termination indemnity or other similar amount payable by Tyco or Electronics, as applicable, as a result of your termination under any arrangement, including without limitation, your Services Agreement, any Tyco or Electronics severance plan or similar termination arrangement, or as otherwise mandated under applicable law, will reduce the amount of the Retention Award.  “Disability” shall mean that you have a permanent and total incapacity that prevents you from engaging in any employment or providing any services for Tyco or Electronics, as applicable, for physical or mental reasons.  A permanent disability shall be deemed to exist if you meet the requirements for disability benefits under the Tyco or Electronics long-term disability plan, as applicable, in which you participate, or if you do not participate in such a plan, then under the requirements for disability benefits under the social security law or similar laws then in effect in the country in which you are employed.

1.4

Any Retention Award amounts payable hereunder shall be paid in the same manner as your base salary payments and Tyco or Electronics, as applicable, shall have the right to withhold all applicable taxes and other required withholding amounts.

2.             Continuation of Employment Contract

Except as otherwise provided herein or as otherwise subsequently revised in writing, the terms and conditions of the Services Agreements shall remain in full force and effect and shall also remain in full force and effect after the Closing Date. You hereby acknowledge that the Services Agreements are the only agreements that govern the terms of your services relationship with Tyco and its subsidiaries and affiliates and that there are no other agreements between you and Tyco or any of its subsidiaries or affiliates under which you provide services as an employee, managing director or independent contractor. You waive any and all rights and entitlements you may have against any other Tyco affiliates. The Tyco affiliates are entitled to accept this waiver at any point of time in the future. You acknowledge — subject to the future acceptance of Tyco Electronics Logistics AG and Tyco Electronics AMP GmbH - that unless terminated at an earlier date in accordance with the terms of the Services Agreements, your employment and other

services with Electronics shall terminate upon the earlier of (i) the last day of the month in which you attain age 65, or upon your retirement before your attainment of age 65.  You hereby agree to provide Electronics with at least 60 days written notice of your intent to retire if you should do so before your attainment of age 65

  3.           Effect on Benefit Plans

You agree that your Retention Award shall not be treated as compensation for purposes of computing or determining any benefit under any pension, savings, severance, bonus/incentive, insurance, or other employee compensation or benefit plan of Tyco or its subsidiaries and affiliates or Electronics.

4.             Choice of Law

This Agreement shall be governed by the laws of New York.   In case of any dispute, the Courts of New York shall be competent for the decision.

5.             Assignment

Neither this Agreement nor any rights or obligations created herein may be assigned or delegated by you.

6.             Severability

If any provision of this Agreement is declared invalid, illegal or unenforceable by any court of competent jurisdiction, all of the remaining provisions of this Agreement shall continue in full force and effect.

7.             Successor

This entire Agreement shall be binding on any successor to Tyco, including without limitation, Electronics.

8.             Complete Agreement

Except as otherwise provided herein, this Agreement is the complete agreement between you and Tyco with respect to the subject matter contained herein and will supersede or replace all prior agreements or understandings between the parties.

9.             Amendments

No modification or amendment hereof shall be valid or binding on either party unless made in writing and signed by both parties or by their duly authorized officers or representatives.

***

Please review this Agreement carefully.  If you are in agreement with the foregoing, please signify your acceptance by signing and dating both copies of this Agreement in the spaces provided and returning one copy to me.

Very truly yours,

/s/ Edward D. Breen

Chairman and Chief Executive Officer

Tyco International Ltd.

/s/ Dr. Juergen W. Gromer

Name: Dr. Juergen W. Gromer

EX-10.2

Exhibit 10.2

SETTLEMENT AGREEMENT AND RELEASE OF CLAIMS

This Settlement Agreement and Release of Claims (the “Agreement”) is made and entered into this 17th day of January, 2006, between Masimo Corporation and Masimo Laboratories, Inc. (hereinafter “Masimo”), and Nellcor Puritan Bennett, Inc., Mallinckrodt, Inc, Tyco Healthcare Group LP, Tyco International Ltd, and Tyco International (US) Inc.  (collectively “Nellcor”) (each individually as a “Party” or collectively the “Parties”).

RECITALS

A.            Whereas the Parties are involved in litigation in the United States District Court for the Central District of California, Civil Action Nos. CV 00-6506 MRP (AJWx) and CV 03-0603 MRP (AJWx) alleging claims under federal patent laws (the “Patent Litigation”);

B.            Whereas the Parties are involved in litigation in the United States District Court for the Central District of California, Civil Action No. CV 02-4770 MRP (AJWx) alleging claims under federal antitrust laws (the “Antitrust Litigation”); and

C.            Whereas Masimo and Nellcor desire to settle fully and finally all claims and disputes between the parties other than the Antitrust Litigation.

AGREEMENT

Now, therefore, in consideration of the mutual covenants and promises herein contained and other good and valuable consideration, receipt and sufficiency of which are hereby acknowledged, and to avoid the expense of further litigation, the Parties covenant and agree as follows:

1Definitions:

1.1“Affiliate” means, with respect to each Party, any legal entity that is, directly or indirectly, controlling, controlled by or under common control with the Party.  For purposes of this definition, an entity shall be deemed to control another entity if it owns or controls, directly or indirectly, more than fifty percent (50%) of the voting equity of the other entity (or other comparable ownership interest for an entity other than a corporation).

1.2“Essentially Unchanged” means no changes other than (i) immaterial changes to the software for  the correction of bugs or implementation of a software translation (e.g., a recompile due to processor change), and /or (ii) hardware changes that are not covered by any of the other Party’s patents not proven invalid or unenforceable by a court of competent jurisdiction, and/or (iii) software changes for size or power utilization, industrial design, user interface and connectivity that are not covered by any of the other Party’s patents not proven invalid or unenforceable by a court of competent jurisdiction, and/or (iv) changes consisting of the addition of the parameters of

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blood pressure, respiration rate, temperature, ECG, and CO2 that are not, alone or in combination with other new features, functions or parameters, covered by any of the other Party’s patents not found invalid or unenforceable by a court of competent jurisdiction and/or (v) changes consisting of the addition of new feature(s), function(s) or parameter(s) that are generated from pulse rate and/or Oxygen Saturation calculations and that are not, alone or in combination with other new features or functions or parameters, covered by any of the other Party’s patents not found invalid or unenforceable by a court of competent jurisdiction.  For purposes of this Section 1.2, “other Party’s patents” includes (a) patents that are exclusively licensed to such Party and (b) with respect to a specified field of use, patents that are exclusively licensed to such party for such field of use.

1.3 “Pulse Oximetry Revenue” means Nellcor’s and its Affiliates’ net pulse oximetry revenue for products shipped, service and licenses to purchasers in the United States.  Net Pulse Oximetry Revenue is calculated in accordance with GAAP, consistent with how such calculations were made in the past by Nellcor, as provided to Masimo in accordance with Section 3.1.  Nellcor has not and will not direct revenue away from the United States and to international markets in order to avoid or reduce paying royalties under this Agreement.  For multiparameter devices (i.e., devices including parameters or therapeutic functions other than pulse rate and Oxygen Saturation), the per unit portion of the net revenue attributable to pulse oximetry revenue will be set at 100% of the then current year average net sales price of Nellcor’s stand alone pulse oximetry monitors, but not less than $1500.

1.4 “Masimo Patents” means U.S. Patent Nos. 6,263,222, 6,157,850, and 5,769,785.

1.5“06 Pulse Oximetry Products” means Nellcor’s pulse oximetry products (including oximetry software licensed to OEMs) that use the 06 algorithm as shown to Masimo during November 2005 in the due diligence process of the Memorandum of Understanding dated October 20, 2005.  A list of the 06 Pulse Oximetry Products is set forth in Exhibit C.

1.6“Oxygen Saturation” is as defined in ISO 9919:2005 section 3.25 (definition of SpO2, which is an estimate of SaO2 or the true functional saturation).

1.7“Fractional Saturation” is as defined in ISO 9919:2005 section 3.8 (definition of fractional oxyhaemoglobin FO2Hb), or HbO2/(Hb + HbO2 + HbCO + HbMet), or SpO2 — (SpCO and/or SpMet), (including using the ratio of ratios for each of the hemoglobins and then converting to fractional saturation), and any approximations thereof.

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2Settlement Payment:

2.1By January 19, 2006, Nellcor shall deliver a non-refundable payment by wire transfer to Masimo Corp. in the amount of Three-Hundred Thirty Million Four-Hundred-Eighty Thousand Dollars ($330,480,000).  This amount is comprised of Two-Hundred-Fifty-Eight Million ($258,000,000) for infringements by 04, 05 and 05ci sales through December 31, 2005; Six Million Two Hundred Fifty Thousand ($6,250,000) for pulse oximetery sales from January 1, 2006 through January 31, 2006; and Sixty-Six Million Two-Hundred- Thirty Thousand ($66,230,000) as an advance royalty payment for the period from February 1, 2006 through December 31, 2006.  Late payments shall accrue interest at 10% per annum.

2.2The Settlement Payment in Section 2.1 is based upon unit shipments of Nellcor 04, 05, 05ci and 06 pulse oximeters and pulse oximeter boards for January 2006 of 9,000 units.  No later than April 1, 2006, Nellcor will provide actual unit volumes for sales of such pulse oximeters and pulse oximeter boards for January 2006 for the same geographic scope presented at the trial.  If Nellcor shipped more than 9,000 units during that period, it shall pay to Masimo an additional amount as follows: the number of such units over 9,000 shall be calculated (“Overage Units”) and, for each 06 unit shipped, up to the number of Overage Units, Nellcor will pay 20% of the Pulse Oximetry Revenue for such units, and if there are any Overage Units in excess of the number of 06 units shipped, Nellcor will pay $580 per unit for each such unit.  If Nellcor shipped less than 9,000 units Masimo will credit Nellcor $580 per unit for each unit under 9,000 toward future royalties due.  The number of units shipped for January 2006 provided by Nellcor will be subject to the audit provisions of Section 6 below.

3Representations and Warranties:

3.1In advance of execution of this Agreement, Nellcor has provided to Masimo’s counsel (under attorney-eyes only confidentiality and to Masimo’s CEO and CFO) documents sufficient to show: (i) unit shipments of 04, 05, and 05ci pulse oximeter products between June 2004 through October 2005 consistent with the damages calculation during the Patent Litigation; and (ii) Pulse Oximetry Revenue for the consecutive calendar quarters ending December 31, 2001 through December 31, 2005.  Nellcor states that its good faith estimate for its Pulse Oximetry Revenue in 2006 is approximately $350 million.  Nellcor represents and warrants that the information provided under this Section 3.1 is materially accurate and complete based upon the information in the books and records of Nellcor.

3.2Nellcor represents and warrants that the 06 Pulse Oximetry Products commercially released will be the same as the product reviewed by Knobbe, Martens, Olson & Bear in November 2005 and will use the same

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specification, circuit diagrams and source code provided under section 4.2.  Further, Nellcor represents and warrants that the 06 Pulse Oximetry Products do not (i) contain closed loop adaptive filters, (ii) calculate Oxygen Saturation based on two or more alternative calculations of Oxygen Saturation, ratio of ratios or a representative indication or value for Oxygen Saturation from the same signal, (iii) calculate pulse rate based on three or more alternative calculations of pulse rate from the same signal, or (iv) measure physiological parameters other than pulse rate, Oxygen Saturation, plethysmographic waveforms, ECG, pulse amplitude (not displayed as a number or in real time on a scale with a number), blood pressure, respiration rate, temperature, ECG and CO2.  Masimo acknowledges for purposes of this Section 3.2 that an ECG signal and an optical signal are not the same signal.  Nellcor acknowledges that for the purposes of this Section 3.2, an optical signal is considered the same signal regardless of the number of wavelengths detected.

3.3Nellcor represents that none of its current sensors, cables which connect the sensor to the pulse oximeters (including OEM boards), or O6 Pulse Oximetry Products are configured to be compatible with any current Masimo pulse oximeters (including OEM boards) or sensors.

3.4Masimo represents that none of its current sensors, cables which connect the sensor to the pulse oximeter (including OEM boards), or products listed in exhibit D are configured to be compatible with any current Nellcor OxiMax pulse oximeter (including OEM boards) or Oximax Sensors, except with respect to the RCAL compatibility (including in OxiMax sensors).  Masimo further represents (i) that Masimo’s currently commercially available oximeters do not store the physiological patient data collected during monitoring in a memory on the sensor, and (ii) that Masimo’s currently commercially available oximeters do not store in a memory on the sensor, sensor-specific user troubleshooting messages for optimal sensor placement.  For purposes of clarity, storing the sensor type or ID and displaying the sensor type when the sensor is connected to the oximeter is not storing a sensor-specific user troubleshooting message.

4Covenants Not to Sue

4.1Masimo and it Affiliates covenant not to sue Nellcor and/or its Affiliates for infringement by Nellcor’s 06 Pulse Oximetry Products, and new products Essentially Unchanged therefrom.  This covenant also extends to the potential change referenced in Section 5.1.  For as long as the running royalties are being paid, Masimo and its Affiliates further covenant not to sue Nellcor and/or its Affiliates for the Nellcor pulse oximetry portion of future Nellcor products, including oximetry software licensed to OEMs, (“Next Generation Pulse Oximeters”) under Claims 17 or 18 of U.S. Patent Number 6,263,222, and continuations and continuations-in-part, either with claims directed to or

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covering the same subject matter.  For as long as the running royalties are being paid, Masimo and its Affiliates further covenant not to sue Nellcor and/or its Affiliates for the Next Generation Pulse Oximeters under Claims 1, 10, 11, 22, 23 and 24 of U.S. Patent Number 6,157,850, and continuations and continuations-in-part, either with claims directed to or covering the same subject matter, provided that such Next Generation Pulse Oximeters (i) do not calculate any physiological parameter other than pulse rate based on two or more alternative calculations of that physiological parameter from the same signal and (ii) do not calculate pulse rate based on three or more alternative calculations of pulse from the same signal, and (iii) do not include parameters other than Oxygen Saturation, pulse rate, plethysmographic waveforms, pulse amplitude (not displayed as a number or in real time on a scale with a number), blood pressure, respiration rate, temperature, ECG and CO2 and feature(s), function(s) or parameter(s) that are generated from pulse rate and/or Oxygen Saturation calculations.  If Nellcor succeeds in reducing royalties under Section 5.1, the same condition to reduce the royalty applies to Next Generation Pulse Oximeters in order for the royalty reduction to apply.  Masimo also covenants not to sue for infringement any customer, distributor, OEM, licensee, supplier or purchasing organization with respect to the purchase, distribution, manufacturing (excluding sensors and accessories not manufactured for Nellcor), marketing or use of the covenanted products or Nellcor and/or its Affiliates products Essentially Unchanged therefrom as described in this Section 4.1.  The covenants of this Section 4.1 do not extend to any products that are permitted or intended for use, with any sensors (including non-Nellcor sensors manufactured by Nellcor for another company) other than Nellcor sensors.

4.2Nellcor shall deliver one Nellcor pulse oximeter containing 06 technology to Masimo’s lawyers, and represents that this has the same technology and performance as that disclosed to Masimo’s lawyers and tested during November 2005.  Nellcor also shall place in an independent, third party escrow on mutually agreeable terms the corresponding specifications, circuit diagrams and source code for such pulse oximeter, as evidence of the 06 technology disclosed to Masimo, which Nellcor represents and warrants will be the same as that disclosed to Masimo’s lawyers and tested during November 2005.  Masimo’s lawyers may provide the pulse oximeter to Masimo on or after January 10, 2006.

4.3Nellcor and its Affiliates covenant not to sue Masimo and/or its Affiliates for infringement by Masimo’s pulse oximetry and Rainbow SET products commercially available as of January 17, 2006 and new products Essentially Unchanged therefrom.  Nellcor and its Affiliates further covenant not to sue Masimo and/or its Affiliates for infringement of any new disposable and multisite versions of the currently commercially available reusable Rainbow sensors and associated cables, and new products Essentially Unchanged therefrom, provided that such sensors are not configured to be compatible

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with Nellcor’s pulse oximeters, where the compatibility between pulse oximeter and the sensor (i.e, lock and key) is covered by a Nellcor patent not proven invalid or unenforceable by a court of competent jurisdiction.  Nellcor and its Affiliates further covenant not to sue Masimo and/or its Affiliates for infringement due to any changes to such products above to enable such products to include the parameters of Fractional Saturation, carboxyhemoglobin, methemoglobin, total hemoglobin, hematocrit, bilirubin and/or glucose..  Nellcor’s and its Affiliates covenants include a covenant not to sue Masimo and/or its Affiliates for infringement for (i) improvements (except improvements to sensors) to precision and accuracy of any parameter in such products available as of January 17, 2006, and Fractional Saturation, total hemoglobin, hematocrit, bilirubin and/or glucose, except to the extent such improvement is covered by any Nellcor patent (or patent exclusively licensed to Nellcor or exclusively licensed to Nellcor for the relevant field of use) not found to be invalid or unenforceable by a court of competent jurisdiction, the substance of which is filed for the first time after the January 17, 2006 and not having a priority claim to a date or entitled to priority from a date before such date and (ii) any other improvement to the covenanted products, except to the extent such other improvement is covered by any Nellcor patent (or patent exclusively licensed to Nellcor or exclusively licensed to Nellcor for the relevant field of use) not found to be invalid or unenforceable by a court of competent jurisdiction.  Nellcor and its Affiliates also covenant not to sue for infringement any customer, distributor, OEM, licensee, supplier or purchasing organization with respect to the purchase, distribution, manufacturing (excluding sensors and accessories not manufactured for Masimo), marketing or use of the covenanted products or Masimo and/or its Affiliates products Essentially Unchanged therefrom as described in this Section 4.3.  Masimo will use good faith efforts to compile a list of pulse oximetry and Rainbow SET products commercially available as of January 17, 2006 and provide such list to Nellcor’s lawyers (under attorney-eyes only confidentiality and to David Sell, Brian Earp, and Paul Mannheimer), and attached hereto as Exhibit D.

4.4The covenants of Sections 4.1 and 4.3 extend to proprietary rights that are exclusively licensed to the covenanting party, or, with respect to a specified field of use, patents that are exclusively licensed to the covenanting party for such field of use, including any right to control the institution or maintenance of litigation.  Nellcor and Masimo will not assist any of its licensors in enforcing proprietary rights against the other party, except to the extent required by law.

5Ongoing Royalties.

5.1Nellcor agrees to pay Masimo Corp. a 13% running royalty based on its and its Affiliates Pulse Oximetry Revenue occurring on or after February 1, 2006.  Nellcor will pay an additional 7% running royalty on its and its Affiliates

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Pulse Oximetry Revenue for calendar year 2006.  Nellcor will pay an additional 2% running royalty on its and its Affiliates Pulse Oximetry Revenue for calendar year 2007.  Nellcor will pay an advance royalty of $66,230,000 on or before January 19, 2006 (the “Payment Date”) for the 2006 royalty as provided in Section 2.  On or after January 1, 2007, the 13% royalty will be reduced to 10%, plus the additional 2% for 2007, in the event that Nellcor establishes that a proposed change to the 06 Pulse Oximetry Products and new products Essentially Unchanged therefrom (and the Next Generation Pulse Oximeters) would result in not calculating any physiological parameter based on two or more alternative calculations for that parameter, or a representative indication or value for that parameter, from the same signal, and that proposed change is then implemented in such products (and the prior products are no longer being made or sold).  In the event of a dispute involving whether a proposed change would accomplish this result, Nellcor shall continue to pay the 13% royalty rate, plus the additional 2% for 2007, until such dispute is resolved.  For purposes of this Section 5.1, Masimo acknowledges that an ECG signal and an optical signal are not the same signal.  For the purposes of this Section 5.1, Nellcor acknowledges that an optical signal is considered the same signal regardless of the number of wavelengths detected.

5.2For the 2006 advance royalty payment, if Nellcor’s Pulse Oximetry Revenues exceed $320,833,000 from February 1, 2006 through December 31, 2006, then Nellcor will pay 17% of the revenue over this amount by March 30, 2007.  If Nellcor’s Pulse Oximetry Revenues are less than $320,833,000 for this same time period, then Nellcor will receive a credit of 17% of the revenue under this amount to be applied to future royalty payments.  Nellcor shall deliver to Masimo within 60 days of the end of each quarter, an accounting of Pulse Oximetry Revenue by product category.

5.3Running royalties accruing on January 1, 2007 and thereafter shall be paid quarterly within 60 days of the end of each calendar quarter.  An accounting of revenue by product category shall be included with each payment.  Late payments will accrue interest at 10% per annum.

5.4On or after March 14, 2011, upon at least sixty (60) days written notice to Masimo, Nellcor may terminate on a prospective basis all protection or rights under Section 4.1,(but Nellcor will retain the right to provide sensors and service for all previously sold products), and Nellcor will no longer be obligated to pay royalties under this section.  Masimo maintains all rights to assert its patents against Nellcor’s and/or its Affiliates’ pulse oximetry products that may be manufactured or sold after termination.  All other provisions of this agreement remain effective.

5.5Any dispute between the Parties arising pursuant to Section 5.1, if not resolved by the Parties after at least two weeks of good faith discussions

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beginning upon one Party providing the other Party notice of the dispute, such discussions to include the most senior executive of Tyco Healthcare and Masimo, shall be resolved by binding and non-appealable arbitration before a member of JAMS, applying CCP 1283.05, agreed to by the Parties (agreement not unreasonably withheld or delayed) with a final decision within two months of initiation of the arbitration proceeding.

6Audit Rights. Nellcor agrees to maintain records sufficient to verify the calculation of all Pulse Oximetry Revenue for a period of two (2) years from the end of the calendar year in which the royalties are paid by Nellcor.  In addition, Nellcor agrees to maintain records sufficient to verify the calculation of all Pulse Oximetry Revenue for calendar years 2004 and 2005 until December 31, 2007.  Nellcor agrees that Masimo, as set forth below, shall have the right to have the books and records of Nellcor inspected, at Masimo’s expense, to verify the accuracy of Nellcor’s accounting reports, but such right shall not extend beyond the period of two (2) years from the end of the calendar year to be audited.  Such inspection shall be carried out by an independent representative or accountant (non-employee) of Masimo agreed upon by Masimo and Nellcor (which agreement shall not be unreasonably withheld) who shall be bound by a confidentiality agreement.  Such representative or accountant shall report to Masimo and Nellcor whether the reports and payments made by Nellcor were correct or, if not correct, the amount of discrepancy.  Masimo agrees to hold all reports in confidence and to impose a similar requirement of confidentiality on any representative or accountant appointed hereunder.  Masimo and any such representative or accountant shall not use any information gained from such inspection for any purpose other than determining and enforcing Masimo’s rights under this Agreement.  No more than one inspection shall be permitted during each calendar year.  In the event that any such inspection leads to a determination that Nellcor underpaid the royalties due to Masimo, Nellcor shall reimburse Masimo such underpayment within fifteen (15) days of the date of the report.  Late payments and underpayments will accrue interest at 10% per annum.  If royalties due Masimo were underpaid by ten percent (10%) or more, Nellcor shall also reimburse Masimo for the reasonable fees and expenses of the independent representative/accountant for the inspection.  In the event of an overpayment of Earned Royalties, then Masimo shall credit Nellcor such overpayment, and such credit will be reflected in Nellcor’s next due royalty payment(s).

7Additional Covenants. Nellcor covenants that it will not claim that its products use Masimo’s technology.  Masimo covenants that it will not claim that its products use Nellcor’s technology.

8No Challenge to Patents. Nellcor agrees that it will not directly, indirectly or in concert with others challenge the validity or enforceability of any of the Masimo Patents, or interfere with the prosecution of any pending application claiming priority to the Masimo Patents, in any Patent Office or in any court (except in connection with litigation initiated, or threatened resulting in a Declaratory Judgment by Nellcor, by Masimo), nor will Nellcor encourage, facilitate or participate with others to do so,

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provided that this sentence does not prohibit Nellcor from participating in an interference instituted by the Patent Office.  However, this Agreement in no way alters any collateral estoppel and Res Judicata effects arising from the Patent Litigation.

9Current Nellcor Products.Nellcor shall discontinue making, offering to sell, selling and shipping its 04, 05, and 05ci technology platform or any other devices that employ an algorithm that is no more than colorably different from the 04, 05, and 05ci algorithms with regard to any one or more of the claims found to be infringed by Nellcor in the Patent Litigation, in any future products by January 31, 2006, except for Latin America and Asia.  For Latin America and Asia, the date will be the time reasonably required to complete regulatory approval proceedings in such regions, but no later than Dec. 1, 2006.  Nellcor retains the right to service and provide sensors for units shipped prior to these dates.  Nothing contained in this Section 9 shall be deemed to prohibit Nellcor from making, offering to sell, selling and shipping O6 Pulse Oximetry Products or products Essentially Unchanged therefrom.

10Releases

10.1                Release By Masimo to Nellcor:  Except for the agreements between the Parties expressly made herein and the claims made in the Antitrust Litigation, Masimo, for itself and for each of its officers, directors, managers, board members, shareholders, employees, servants, agents, successors in interest, predecessors, assigns, administrators, representatives, Affiliates, insurers and attorneys, hereby forever and completely releases and discharges: (a) Nellcor and each of its officers, directors, managers, board members, shareholders, employees, servants, agents, successors in interest, predecessors, assigns, administrators, representatives, its Affiliates, insurers and attorneys of and from any and all claims, demands, causes of action, liabilities, and obligations of every kind and nature, in law, equity or otherwise, known and unknown, suspected and unsuspected, disclosed and undisclosed, for damages of any sort whatsoever, past, present and future, and for equitable relief, for any and all causes of action existing as of the Effective Date of this Agreement, including but not limited to any such claim or demand arising out of or in any way related to the facts and claims alleged in the Patent Litigation; and (b) any customer, distributor, OEM, licensee, supplier or purchasing organization with respect to the purchase, distribution, marketing, manufacturing or use of Nellcor’s 04, 05, and 05ci products (including oximetry software licensed to OEMs) obtained on or before January 31, 2006 (but this shall not release any licensee or OEM with respect to inclusion of any oximetry software in any product manufactured or sold after January 31, 2006).

10.2        Release By Nellcor to Masimo:  Except for the agreements between the Parties expressly made herein and the defenses made in the Antitrust Litigation (other than the claims or defenses released and waived pursuant to Section 10.3 below), Nellcor, for itself and for each of its officers, directors, managers, board members, shareholders, employees, servants, agents, successors in interest, predecessors,

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assigns, administrators, representatives, Affiliates, insurers and attorneys, hereby forever and completely releases and discharges: (a) Masimo and each of its officers, directors, managers, board members, shareholders, employees, servants, agents, successors in interest, predecessors, assigns, administrators, representatives, its Affiliates, insurers and attorneys of and from any and all claims, demands, causes of action, liabilities, and obligations of every kind and nature, in law, equity or otherwise, known and unknown, suspected and unsuspected, disclosed and undisclosed, for damages of any sort whatsoever, past, present and future, and for equitable relief, for any causes of action existing as of the Effective Date of this Agreement, including but not limited to any such claim or demand arising out of or in any way related to the facts and claims alleged in the Patent Litigation; and (b) any customer, distributor, OEM, licensee, supplier or purchasing organization with respect to the purchase, distribution, marketing, manufacturing or use of Masimo’s pulse oximetry and Rainbow SET products (including oximetry software licensed to OEMs) obtained on or before the date of this agreement.

10.3         Scope of Released Claims:  The claims released in Sections 10.1 and 10.2 of this Agreement (the “Released Claims”) do not include any claims arising from or related to the Antitrust Litigation.  Thus, nothing in this Agreement shall be construed to release, modify, bar or limit any of the claims, rights or causes of action that Masimo has asserted against Nellcor or defenses asserted by Nellcor in the Antitrust Litigation, all of which are expressly preserved, except that any and all claims or defenses asserted by Nellcor in the Antitrust Litigation related to Nellcor’s U.S. Patent No. 4,934,372 or any other claims or defenses related to alleged infringement by Masimo of Nellcor patents are released and waived by virtue of this settlement.

10.4         Release Of Unknown Claims:  It is understood and agreed by each Party that solely with respect to the claims as described in Sections 10.1, 10.2 and 10.3 above, this is a full, complete and final release and each Party agrees that it shall apply as provided and excepted in this Agreement to all unknown, unanticipated, unsuspected and undisclosed claims, demands, liabilities, actions or causes of action, in law, equity or otherwise, as well as those which are now known, anticipated, suspected or disclosed.  Each Party has been fully advised by its respective attorney of the contents of Section 1542 of the Civil Code of the State of California, and that section and the benefits thereof are hereby expressly waived.  Section 1542 reads as follows:

“Section 1542.  (General Release - Claims Extinguished.)  A general release does not extend to claims which the creditor does not know or suspect to exist in his favor at the time of executing the release, which if known by him must have materially affected his settlement with the debtor.”

In addition, solely with respect to the claims released pursuant to Sections 10.1, 10.2 and 10.3, each Party will be deemed to relinquish, to the extent they are applicable, and to the full extent permitted by law, the provisions, rights and benefits of any law,

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or principle of common law, which is similar, comparable or equivalent to California Civil Code §1542.  Each Party acknowledges that the Party may discover facts in addition to or different to from those now known or believed to be true with respect to the subject matter of this release, but that it is the intention of the Party to fully, finally and forever settle and release any and all claims released hereby, known or unknown, suspected or unsuspected, which now exist, or heretofore existed, and without regard to the subsequent discovery or existence of such additional or different facts.  Each Party warrants that the Party has read and understands the aforesaid Section 1542 and has had the opportunity to consult with and be advised by counsel regarding its meaning and effect and the Party voluntarily waives its provisions and any other provision or statute of like effect.

10.5         Each party represents and warrants that it has not assigned, sold, or otherwise transferred to any third party any claims or causes of action against the other Party existing prior to the Effective Date.

11Dismissal:  Within 14 business days of receipt of the payment specified in Section 2 of this Agreement, Masimo and Nellcor shall execute and file in each case in the Patent Litigation a stipulated dismissal with prejudice in the form attached as Exhibit B.  Each Party shall simultaneously serve a copy of such dismissal on the other Party.  As provided in Exhibit B, the United States District Court for the Central District of California shall retain jurisdiction over the Parties and this Agreement for purposes of enforcing this Agreement.

12Press Release:  The Parties agree that simultaneously each will issue a press release regarding this settlement agreement in the form attached hereto as Exhibit A.

13Warrant Of Authority:  Each Party warrants and represents that it is fully entitled and duly authorized to enter into and bind itself under this Agreement.

14Drafting:  The Parties and their counsel have cooperated in the drafting and preparation of this Agreement.  The Parties agree that any ambiguities in this Agreement shall not be construed against any Party by virtue of that Party having drafted the language in question.

15Reading Of Agreement:  The Parties each declare that they have read this Agreement in its entirety and know and understand its contents, have had the opportunity to consult with legal counsel of their choice, and that they each comprehend and agree to all of this Agreement’s terms, conditions and meanings freely, knowingly and willingly.  It is understood by the Parties that, other than as set forth in this Agreement, the facts in respect of which this Agreement is made may hereinafter prove to be other than or different from the facts now known by any of them or believed by any of them to be true.  Each of the Parties expressly accepts and assumes the risk of the facts, other than as set forth in this Agreement, proving to be different, and each of the Parties agrees that all terms of this Agreement will be in all

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respects effective and not subject to termination or rescission by virtue of any such difference.

16Term: The term of this Agreement will begin upon the Effective Date.  Except as provided in Section 5.4, the covenants not to sue and Nellcor’s obligation to pay running royalties to Masimo shall continue through the later of March 14, 2011, the latest expiration of the Masimo Patents (excluding the ‘850 patent if the conditions for royalty reduction pursuant to Section 5 have been met) or the last availability of the covenanted products from Nellcor, its OEMs or Distributors.  Notwithstanding any other provision in this Agreement, the covenant by Nellcor not to sue Masimo under Section 4.3 shall survive any termination of this Agreement, and continue so long as the products covenanted are available.

17Disclaimers: Nothing in this Agreement may be construed as

        (a)           a warranty, representation, or promise relating to the Masimo Patents, including, without limitation, the validity, enforceability, scope or suitability; or

        (b)           an obligation to bring or prosecute actions or suits against third parties, or defend actions or suits brought against the other party, or indemnify the other party for any reason; or

        (c)           conferring upon either party the right to use in advertising, publicity, or otherwise any trademark, service mark, or trade name of the other party; or

        (d)           conferring upon either party, by implication or otherwise, any right or license under any patents or other industrial or intellectual property rights (including, without limitation, trademarks, service marks, trade names, and copyrights) except for the rights expressly granted herein.

18No Refund.  Nellcor acknowledges that this Agreement is being entered into, for among other reasons, settlement of litigation and that all amounts paid by Nellcor (except any advance royalty payments overpayment in accordance with Section 5.2) to Masimo are nonrefundable, even if the validity, scope, or enforceability of Masimo’s patents are subsequently challenged and such patents are deemed by a court of competent jurisdiction to be held invalid, of narrower scope, or unenforceable.

19Acceptance of Royalty:Acceptance of any royalty payment by Masimo shall not be deemed to be a waiver of any rights of Masimo, including the right to claim that products are not within the covenant not to sue and infringe one or more patents of Masimo.  In addition, all payments made to Masimo after any notice by Masimo that a product does not fall within the covenant not to sue may be accepted by Masimo and shall be used as an offset for damages, if any, awarded to Masimo if such product is found to infringe one or more patents of Masimo.

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20Non-Reliance:  The Parties each declare that in agreeing to and executing this Agreement, they do not rely and have not relied upon any representation or statement made by any of the Parties or by any of the Parties’ officers, directors, managers, board members, shareholders, employees, servants, agents, successors in interest, predecessors, assigns, administrators, representatives, insurers, or attorneys with regard to the subject matter, basis or effect of this Agreement or otherwise, other than those stated in this written Agreement.

21Entire Agreement:  This Agreement contains the entire agreement among the Parties and constitutes the complete, final and exclusive embodiment of their agreement with respect to the subject matter hereof.  The terms of this Agreement are contractual and not a mere recital.  This Agreement may not be altered, modified or otherwise changed in any respect except by a writing duly executed by the Parties to be bound or their authorized representatives.

22Remedies For Breach:  The Parties acknowledge that breach or default of this Agreement will result in irreparable harm to the non-breaching Party, that it would be impracticable or extremely difficult to fix the amount of such harm, and that in the event of any breach or default of this Agreement, the non-breaching Party shall have all remedies provided by law and equity to enforce the Agreement, including without limitation an award for damages, specific performance or injunctive relief, including specific performance as to Nellcor’s discontinuance of the 04, 05 and 05ci products.  The prevailing Party in any action to enforce this Agreement, or in any action arising out of any breach of this Agreement, shall be entitled to recover, in addition to any other relief awarded, court costs and reasonable attorney fees incurred in connection with any action to enforce this Agreement.

23Successors And Assigns:  This Agreement, including without limitation all rights, obligations, and covenants, shall bind the heirs, personal representatives, successors and assigns of each Party, and inure to the benefit of each Party, its successors and assigns, including without limitation any successor or assign as a result of bankruptcy.  For purposes of the United States Bankruptcy code, the parties’ patents and the covenants not to sue herein are intellectual property and intellectual property licenses as those terms are defined and used in Sections 101(35A) and 365(n) of the code, and each recipient of a covenant is entitled to the rights and protections provided to a licensee of intellectual property by Section 365(n).

24Titles:  The titles of paragraphs herein are inserted solely for convenience and do not affect the construction of any provision of this Agreement.

25Fees And Costs:  Each Party shall be solely responsible for its own costs, expenses, and attorney’s fees, taxable or otherwise, incurred in or arising out of or in any way related to the matters released herein, the Patent Litigation and this Agreement.

26Severance:  Except with respect to provisions involving a covenant between the Parties, should any provision of this Agreement be declared or determined by any

13

court or tribunal of competent jurisdiction to be illegal, invalid, or unenforceable, the legality, validity, and enforceability of the remaining parts, terms, or provisions shall not be affected thereby and said illegal, unenforceable or invalid part, term, or provision shall be deemed not to be part of this Agreement.  In addition, in the event that the parties are in disagreement about the application of one or more provisions of this agreement, that dispute shall not impact the operation of the other provisions of this Agreement.

27Choice Of Law:  This Agreement shall be governed by, and construed and enforced in accordance with the laws of the State of California, without regard to any conflict of law principles that would result in the application of the laws of a different state.  Jurisdiction and venue over any dispute arising out of or relating to this Agreement or the subject matter to which it relates shall lie exclusively with the United States District Court for the Central District of California.  The parties hereby irrevocably waive any present or future objections to such venue and irrevocably consent and submit unconditionally to this exclusive jurisdiction in California.  The Parties also hereby stipulate that any judgment arising out of this Agreement and issued by a court of competent jurisdiction in the State of California shall be given full faith and credit in all jurisdictions.

28Review And Investigation Of Agreement:  Each Party represents and warrants that the Party, or a responsible officer thereof, has read this Agreement and understands the contents hereof.  Each of the directors and/or officers executing this Agreement on behalf of their respective corporations is duly authorized to do so and thereby bind such respective corporation.  Each Party represents and warrants that the Party has made such investigation of the facts pertaining to the terms and provisions herein and this Agreement, and of all of the matters pertaining thereto, as the Party deems necessary.

29Execution In Counterparts:  This Agreement may be executed in counterparts, including telecopied counterparts, with the same effect as if all Parties have signed the same document and each such executed counterpart shall be deemed to be an original instrument.  All executed counterparts together shall constitute one and the same instrument.

30Date Of Execution:The date of the last signature placed on this Agreement shall be known as the “date of execution” of this Agreement.

31Confidentiality:  The financial terms of this Agreement are confidential, except (i) as disclosed in the press release of Exhibit A, (ii) in connection with any discussions by Masimo with any other third party relating to the possible granting of rights under any of its patents, (iii) to any third party that has an agreement to maintain the information confidential, and (iv) as required by law (including filing the agreement in connection with any SEC filing).  Exhibit D to this Agreement remains confidential per the terms set forth Section 4.3

14

32Effective Date:  The Effective Date of this Agreement is the day that Masimo receives the Settlement Payment of Section 2.1.

15

In Witness Whereof, the Parties have duly authorized and caused this Agreement to be executed:

	MASIMO CORPORATION
Dated:  1/17/06	By:	/s/ Joe Kiani
	Name:	Joe Kiani
	Title:	CEO
	MASIMO LABORATORIES
Dated:  1/17/06	By:	/s/ Joe Kiani
	Name:	Joe Kiani
	Title:	CEO
	TYCO HEALTHCARE GROUP LP
Dated:  1/17/06	By:	/s/ Richard J. Meelia
	Name:	Richard J. Meelia
	Title:	President
	MALLINCKRODT INC.
Dated:  1/17/06	By:	/s/ Richard J. Meelia
	Name:	Richard J. Meelia
	Title:	President
	NELLCOR PURITAN BENNETT INC.
Dated:  1/17/06	By:	/s/ Richard J. Meelia
	Name:	Richard J. Meelia
	Title:	President

16

	TYCO INTERNATIONAL LTD.
Dated:  1/18/06	By:	/s/ William B. Lytton
	Name:	William B. Lytton
	Title:	EVP & General Counsel
	TYCO INTERNATIONAL (US) INC.
Dated:  1/17/06	By:	/s/ Richard J. Meelia
	Name:	Richard J. Meelia
	Title:	Vice President

17

Exhibit A

FORM OF PRESS RELEASE

Masimo and Nellcor Announce Settlement of Patent Litigation

Masimo (Nellcor, a division of Tyco), today announced a settlement of all existing patent litigation with Nellcor, a division of Tyco (Masimo).  Under the terms of the settlement, all pending patent litigation will be dismissed, and Masimo will receive approximately $265 Million in past damages through January 31, 2006.  After January 31, 2006, Nellcor will no longer ship its current 05 pulse oximetry platform, but it will continue to provide service and sensors for previously sold products.  Masimo has granted Nellcor the right to sell its new line of pulse oximetry products in exchange for an ongoing royalty.

{Masimo Boilerplate}

{Nellcor Boilerplate}

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Exhibit B

Stipulated Dismissals

Craig N. Hentschel (CSB #66178)	James F. Lesniak (CSB #115889)
chentschel@dykema.com	jfl@kmob.com
DYKEMA GOSSETT PLLC	Joseph R. Re (CSB #134479)
333 South Grand Avenue	jrr@kmob.com
Suite 2100	Karen Vogel Weil (CSB #145066)
Los Angeles, CA 90071	kvw@kmob.com
Telephone: (213) 457-1800	Jon W. Gurka (CSB #187964)
Facsimile: (213) 457-1850	jwg@kmob.com
	Joseph S. Cianfrani (CSB#196186)
Robert C. Morgan (CSB #46348)	jsc@kmob.com
robert.morgan@ropesgray.com	KNOBBE, MARTENS,
ROPES & GRAY LLP	OLSON & BEAR, LLP
FISH & NEAVE IP GROUP	2040 Main Street, 14th Floor
1251 Avenue of the Americas	Irvine, CA 92614
New York, NY 10020	Telephone: (949) 760-0404
Telephone: (212) 596-9000	Facsimile: (949) 760-9502
Facsimile: (212) 596-9090
	Attorneys for
Attorneys for Plaintiffs/Counterdefendants,	Defendant/Counterclaimant,
Nellcor Puritan Bennett, Inc. and	MASIMO CORPORATION
Mallinckrodt Inc.

IN THE UNITED STATES DISTRICT COURT

FOR THE CENTRAL DISTRICT OF CALIFORNIA

WESTERN DIVISION

NELLCOR PURITAN BENNETT, INC., a		)	Civil Action No.
Delaware corporation, and MALLINCKRODT,		)	CV            MRP (AJWx)
INC., a Delaware corporation,		)
		)	STIPULATED DISMISSAL
	Plaintiffs,	)	WITH PREJUDICE
		)
v.		)
		)
MASIMO CORPORATION, a Delaware corporation,		)
		)
	Defendant.	)
		)
		)
AND RELATED COUNTERCLAIMS.		)
		)	Honorable Mariana R. Pfaelzer
		)

1

                Pursuant to Rule 41(a)(1)(ii) of the Federal Rules of Civil Procedure, the parties, through their respective counsel of record, do hereby agree and stipulate to dismiss this action, and the claims and counterclaims therein, with prejudice.  The parties have entered into a settlement agreement which resolves each and every claim and counterclaim made in this action, with each party agreeing to forgo any appeal and to pay its own costs and attorneys’ fees.  The court shall retain jurisdiction to enforce the terms of the settlement agreement.

		Respectfully submitted,
		ROPES & GRAY, LLP
Dated:		By:
			Robert C. Morgan
		Attorneys for Plaintiff/Counterdefendants,
		MALLINCKRODT, INC. and NELLCOR PURITAN BENNET, INC.
		KNOBBE, MARTENS, OLSON
		& BEAR, LLP
Dated:		By:
			James F. Lesniak
			Joseph R. Re
		Attorneys for Defendant/Counterclaimant,
		MASIMO CORPORATION
	IT IS SO ORDERED.
Dated:		By:
			Honorable Mariana R. Pfaelzer

1

EX-10.3

Exhibit 10.3

AMENDMENT TO SETTLEMENT AGREEMENT
AND RELEASE OF CLAIMS

This Amendment to the January 17, 2006 Settlement Agreement and Release of Claims (“the Agreement”) is made this 24th day of January 2006 between Masimo Corporation and Masimo Laboratories, Inc. (hereinafter “Masimo”), and Nellcor Puritan Bennett, Inc., Mallinckrodt, Inc., Tyco Healthcare Group LP, Tyco International Ltd., and Tyco International (US) Inc. (collectively “Nellcor”) (each individually as a “Party” or collectively the “Parties”).

RECITALS

A.            Whereas the Parties entered into the Agreement on January 17, 2006.

B.            Whereas the Parties wish to amend Section 5.2 of the Agreement to more accurately reflect their agreement and intent.

AMENDMENT

Therefore in consideration of the mutual covenants and promises contained herein and in the Agreement, and other good and valuable consideration, receipt and sufficiency are hereby acknowledged, the Parties agree that Section 5.2 of the Agreement is amended to read in its entirety as follows:

Section 5.2 (as amended)

5.2           For the 2006 advance royalty payment, if Nellcor’s Pulse Oximetry Revenues exceed $320,833,000 from February 1, 2006 through December 31, 2006 related to the 13% running royalty in Section 5.1, then Nellcor will pay 13% of the revenue over this amount by March 30, 2007.  If Nellcor’s Pulse Oximetry Revenues are less than $320,833,000 for this same time period, then Nellcor will receive a credit of 13% of the revenue under this amount to be applied to future royalty payments.  Additionally, if Nellcor’s Pulse Oximetry Revenues exceed $350,000,000 for calendar year 2006 related to the additional 7% running royalty in Section 5.1, then Nellcor will pay 7% of the revenue over this amount by March 30, 2007.  If Nellcor’s Pulse Oximetry Revenues are less than $350,000,000 for this same time period, then Nellcor will receive a credit of 7% of the revenue under this amount to be applied to future royalty payments.  Nellcor shall deliver to Masimo within 60 days of the end of each quarter, an accounting of Pulse Oximetry Revenue by product category.

In Witness Whereof, the Parties have duly authorized and caused this Amendment to be executed:

	MASIMO CORPORATION
Dated:  1/24/06	By:	/s/ Joe Kiani
	Name:	Joe Kiani
	Title:	CEO
	MASIMO LABORATORIES
Dated:  1/24/06	By:	/s/ Joe Kiani
	Name:	Joe Kiani
	Title:	CEO
	TYCO HEALTHCARE GROUP LP
Dated:  1/24/06	By:	/s/ Richard J. Meelia
	Name:	Richard J. Meelia
	Title:	President
	MALLINCKRODT INC.
Dated:  1/24/06	By:	/s/ Richard J. Meelia
	Name:	Richard J. Meelia
	Title:	President
	NELLCOR PURITAN BENNETT INC.
Dated:  1/24/06	By:	/s/ Richard J. Meelia
	Name:	Richard J. Meelia
	Title:	President

2

	TYCO INTERNATIONAL LTD.
Dated:  1/24/06	By:	/s/ William B. Lytton
	Name:	William B. Lytton
	Title:	EVP & General Counsel
	TYCO INTERNATIONAL (US) INC.
Dated:  1/24/06	By:	/s/ Richard J. Meelia
	Name:	Richard J. Meelia
	Title:	Vice President

3

EX-10.4

Exhibit 10.4

UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF NEW YORK

SECURITIES AND EXCHANGE

COMMISSION,

                                                                Plaintiff,

                                v.

TYCO INTERNATIONAL LTD.,

                                                                Defendant.

FINAL JUDGEMENT AS TO

DEFENDANT TYCO INTERNATIONAL LTD.

The Securities and Exchange Commission (“Commission”) having filed a Complaint and Defendant Tyco International Ltd. (“Defendant”) having entered a general appearance; consented to the Court’s jurisdiction over Defendant and the subject matter of this action; consented to entry of this Final Judgment without admitting or denying the allegations of the Compliant (except as to jurisdiction); waived finding of fact and conclusions of law; and waived any right to appeal from this Final Judgment:

I.

IT IS HEREBY ORDERED, ADJUDGED, AND DECREED that Defendant and Defendant’s agents, servants, employees, attorneys, and all persons in active concert or participation  with them who receive actual notice of this Final Judgment by personal service or otherwise are permanently restrained and enjoined from violating, directly or indirectly, Section 10(b) of the Securities Exchange Act of 1934 (the “Exchange Act”) [15 U.S.C. § 78j(b)], and Exchange Act Rule 10b-5 [17 C.F.R. § 240.106-5] by using any

1

means or instrumentality of interstate commerce, or of the mails, or of any facility of any national securities exchange in connection with the purchase or sale of any security:

(a)to employ any device, scheme, or artifice to defraud;

(b)to make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading; or

(c)to engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person.

II.

IT IS HEREBY FURTHER ORDERED, ADJUDGED, AND DECREED that Defendant and Defendant’s agents, servants, employees, attorneys, and all persons in active concert or participation with them who receive actual notice of this Final Judgment by personal service or otherwise are permanently restrained and enjoined from violating Section 17(a) of the Securities Act of 1933 (the “Securities Act”) [15 U.S.C. § 77q(a)] in the offer or sale of any security by the use of any means or instruments of transportation or communication in interstate commerce or by use of the mails, directly or indirectly:

(a)to employ any device, scheme, or artifice to defraud;

(b)to obtain money or property by means of any untrue statement of a material fact or any omission of a material fact necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading;  or

2

(c)to engage in any transaction, practice, or course of business which operates or would operate as a fraud or deceit upon the purchaser.

III.

IT IS HEREBY FURTHER ORDERED, ADJUDGED, AND DECREED that Defendant and Defendant’s agents, servants, employees, attorneys, and all persons in active concert or participation with them who receive actual notice of this Final Judgment by personal service or otherwise are permanently restrained and enjoined from violating Section 13(a) of the Exchange Act [15 U.S.C. § 78m(a)] and Exchange Act Rules 12b-20, 13a-1, and 13a-13 [17 C.F.R. §§ 240.12b-20, 240.13a-1, and 240.13a-13] by:

(a)failing to file such annual reports and quarterly reports as the Commission prescribes, or such information and documents required to be included in or filed with an application of registration statement filed pursuant to Section 12 of the Exchange Act [15 U.S.C. § 78/]; or

(b)failing to add a statement or report required by the Commission such further material information, if any, as may be necessary to make the required statements, in the light of the circumstances under which they were made, not misleading.

IV.

IT IS HEREBY FURTHER ORDERED, ADJUDGED, AND DECREED that Defendant and Defendant’s agents, servants, employees, attorneys, and all persons in active concert or participation with them who receive actual notice of this Final Judgment by personal service or otherwise are permanently restrained and enjoined from violating,

3

directly or indirectly Section 13(b)(2)(A) and (b)(2)(B)of the Exchange Act [15 U.S.C. § 78m(b)(2)(A), (b)(2)(B)] and Exchange Act Rule 13b2-1 [17 C.F.R. § 240.13b2-1] by:

(a)failing to make and keep books, records, and accounts, which, in reasonable detail, accurately and fairly reflect the transactions and dispositions of its assets;

(b)failing to devise and maintain a system of internal accounting controls sufficient to provide reasonable assurances that: transactions are executed in accordance with management’s general or specific authorization; transaction are recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles or any other criteria applicable to such statements, and to maintain accountability for assets; access to assets is permitted only in accordance with management’s general or specific authorization; and the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences; or

(c)falsifying, or causing to be falsified, any book, record, or account subject to Section 13(b)(2)(A) of the Exchange Act [15 U.S.C. § 78m(b)(2)(A)].

V.

IT IS HEREBY FURTHER ORDERED, ADJUDGED, AND DECREED that Defendant and Defendant’s agents, servants, employees, attorneys, and all persons in

4

active concert or participation with them who receive actual notice of this Final Judgment by personal service or otherwise are permanently restrained and enjoined from violating, directly or indirectly Section 14(a) of the Exchange Act [15 U.S.C. § 78n(a)] and Exchange Act Rule 14a-9 [17 C.F.R. § 240.14a-9] by using the mails, any means or instrumentality of interstate commerce, or any facility of any national securities exchange or otherwise, to solicit or permit the use of its name to solicit any proxy, consent or authorization in respect of any security (other than an exempted security) registered pursuant to Section 12 of the Exchange Act [15 U.S.C. §78/], by means of any proxy statement, form of proxy, notice of meeting, or other communication, written or oral, containing any statement which:

(a)at the time and in the light of circumstances under which it is made, is false or misleading with respect to any material fact;

(b)omits to state any material fact necessary in order to make the statements therein not false or misleading; or

(c)omits to state any material fact necessary to correct any statement in any earlier communication with respect to the solicitation of a proxy for the same meeting or subject matter which has become false or misleading.

VI.

IT IS HEREBY FURTHER ORDERED, ADJUDGED, AND DECREED that Defendant and Defendant’s agents, servants, employees, attorneys, and all persons in active concert or participation with them who receive actual notice of this Final Judgment by personal service or otherwise are permanently restrained and enjoined from violating,

5

directly or indirectly Section 30A(a) of the Exchange Act [15 U.S.C. § 78dd-1(a)] by using the mails or any means or instrumentality of interstate commerce corruptly in furtherance of any offer, payment, promise to pay, or authorization of the payment of any money, or offer, gift, promise to give, or authorization of the giving of anything of value to:

(a)any foreign official for purposes of (i) influencing any act or decision of such foreign official in his official capacity, (ii) inducing such foreign official to do or omit to do any act in violation of the lawful duty of such official, (iii) securing any improper advantage, or (iv) inducing such foreign official to use his influence with a foreign government or instrumentality thereof to affect or influence any act or decision of such government or instrumentality, in order to assist Defendant in obtaining or retaining business;

(b)any foreign political party or official thereof or any candidate for foreign political office for purposes of (i) influencing any act or decision of such foreign official in his official capacity, (ii) inducing such foreign official to do or omit to do any act in violation of the lawful duty of such official, (iii) securing any improper advantage, or (iv) inducing such foreign official to use his influence with a foreign government or

6

instrumentality thereof to affect or influence any act or decision of such government or instrumentality, in order to assist Defendant in obtaining or retaining business;

(c)any person, while knowing that all or a portion of such money or thing of value will be offered, given, or promised, directly, to any foreign political party or official thereof, or to any candidate for foreign political officer for purposes of (i) influencing any act or decision of such foreign official in his official capacity, (ii) inducing such foreign official to do or omit to do any act in violation of the lawful duty of such official, (iii) securing any improper advantage, or (iv) inducing such foreign official to use his influence with a foreign government or instrumentality thereof to affect or influence any act or decision of such government or instrumentality, in order to assist Defendant in obtaining or retaining business.

VII.

IT IS HEREBY FURTHER ORDERED, ADJUDGED, AND DECREED that Defendant is liable for disgorgement of $1, representing profits gained or losses avoided as a result of the conduct alleged in the Compliant, and a civil penalty in the amount of $50,000,000 pursuant to Section 20(d) of the Securities Act [15 U.S.C. § 77t(d)] and Section 21(d)(3) and 32(c)(1)(B) and the Exchange Act [15 U.S.C. §§ 78u(d)(3) and 78ff(c)(1)(B)].  Defendant shall satisfy this obligation by paying $50,000,001 within ten business days of the entry of the Final Judgment.  Defendant shall make payment to the Clerk of this Court, together with a cover letter identifying Tyco International Ltd. as a

7

defendant in this action; setting forth the title and civil action number of this action and the name of this Court; and specifying that payment is made pursuant to this Final Judgment.  Defendant shall simultaneously transmit photocopies of such payment and letter to the Commission’s counsel in this action.  By making this payment, Defendant relinquishes all legal and equitable right, title, and interest in such funds, and no part of the funds shall be returned to Defendant.  Defendant shall pay post-judgment interest on any delinquent amounts pursuant to 28 U.S.C. § 1961.

The Clerk shall deposit the funds into an interest bearing account with the Court Registry Investment System (“CRIS”).  These funds, together with any interest and income earned thereon (collectively, the “Fund”), shall be held by the CRIS until further order of the Court.  In accordance with 28 U.S.C. § 1914 and the guidelines set by the Director of the Administrative Office of the United States Courts, the Clerk is directed, without further order of this Court, to deduct from the income earned on the money in the Fund a fee equal to ten percent of the income earned on the Fund.  Such fee shall not exceed that authorized by the Judicial Conference of the United States.

The Commission may by motion propose a plan to distribute the Fund subject to the Court’s approval.  Such a plan may provide that the Fund shall be distributed pursuant to the Fair Fund provisions of Section 308(a) of the Sarbanes-Oxley Act of 2002.  Defendant shall pay all additional costs incurred under the plan resulting from the distribution of the $50,000,001 disgorgement and civil penalty, and there will be no deduction from the Fund for those additional costs.  Regardless of whether any such Fair Fund distribution is made, amounts ordered to be paid as civil penalties pursuant to this Judgment shall be treated as penalties paid to the government for all purposes, including

8

all tax purposes.  To preserve the deterrent effect of the civil penalty, Defendant shall not, after offset or reduction of any award of compensatory damages in any Related Investor Action based on Defendant’s payment of a civil penalty in this action (“Penalty Offset”).  If the court in any Related Investor Action grants such a Penalty Offset, Defendant shall, within thirty days after entry of a final order granting the Penalty Offset, notify the Commission’s counsel in this action and pay the amount of the Penalty Offset to the United States Treasury or to a Fair Fund, as the Commission directs.  Such a payment shall not be deemed an additional civil penalty and shall not be deemed to change the amount of the civil penalty and shall not be deemed to change the amount of the civil penalty imposed in this Judgment.  Moreover, in the event the Fund payments be considered in calculating the attorneys’ fees or expenses counsel would entitled to collect in a Related Investor Action.  For purposes of this paragraph, a “Related Investor Action” means a private damages action brought against Defendant by or on behalf of one or more investors based on substantially the same facts as alleged in the Complaint in this action.

VIII.

IT IS HEREBY FURTHER ORDERED, ADJUDGED, AND DECREED that the Consent of Tyco International Ltd. filed with the Court herewith is incorporated herein with the same force and effect as if fully set forth herein, and that Defendant shall comply with all of the undertakings and agreements set forth therein.

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IX.

IT IS HEREBY FURTHER ORDERED, ADJUDGED, AND DECREED that this Court shall retain jurisdiction of this matter for the purposes of enforcing the terms of this Final Judgment.

Dated:	4/25/06
		/s/ Robert Sweet
		UNITED STATES DISTRICT JUDGE

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EX-31.1

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Exhibit 31.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

I, Edward D. Breen, certify that:

1.

I have reviewed this Quarterly Report on Form 10-Q of Tyco International Ltd.;

2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.

The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in the Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)

Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)

Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.

The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: May 9, 2006

/s/  EDWARD D. BREEN Edward D. Breen
Chief Executive Officer

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Exhibit 31.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

EX-31.2

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Exhibit 31.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER

I, Christopher J. Coughlin, certify that:

1.

I have reviewed this Quarterly Report on Form 10-Q of Tyco International Ltd.;

2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.

The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in the Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)

Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)

Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.

The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: May 9, 2006

/s/  CHRISTOPHER J. COUGHLIN Christopher J. Coughlin
Executive Vice President
and Chief Financial Officer

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Exhibit 31.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER

EX-32.1

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Exhibit 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350
TYCO INTERNATIONAL LTD.
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

        The undersigned officers of Tyco International Ltd. (the "Company") hereby certify to their knowledge that the Company's quarterly report on Form 10-Q for the period ended March 31, 2006 (the "Report"), as filed with the Securities and Exchange Commission on the date hereof, fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, as amended, and that the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/  EDWARD D. BREEN Edward D. Breen
Chief Executive Officer
May 9, 2006

/s/  CHRISTOPHER J. COUGHLIN Christopher J. Coughlin
Executive Vice President
and Chief Financial Officer
May 9, 2006

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CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 TYCO INTERNATIONAL LTD. CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002