-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WbuMNXAIrAz/kvlYLKLYlxUy9BOrVrkTSLXNAdKOv2uvFskiXW9hyDXhNvjtkcxt 3gw+2tvVj3LRjLibC6xTww== 0001047469-06-010588.txt : 20060808 0001047469-06-010588.hdr.sgml : 20060808 20060808172357 ACCESSION NUMBER: 0001047469-06-010588 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20060630 FILED AS OF DATE: 20060808 DATE AS OF CHANGE: 20060808 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TYCO INTERNATIONAL LTD /BER/ CENTRAL INDEX KEY: 0000833444 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRONIC CONNECTORS [3678] IRS NUMBER: 000000000 STATE OF INCORPORATION: D0 FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-13836 FILM NUMBER: 061014260 BUSINESS ADDRESS: STREET 1: 90 PITTS BAY ROAD STREET 2: THE ZURICH CENTRE SECOND FLOOR CITY: PEMROKE HM 08 BERMU STATE: D0 BUSINESS PHONE: 4412928674 MAIL ADDRESS: STREET 1: C/O TYCO INTERNATIONAL (US) INC STREET 2: ONE TYCO PARK CITY: EXETER STATE: NH ZIP: 03833 FORMER COMPANY: FORMER CONFORMED NAME: ADT LIMITED DATE OF NAME CHANGE: 19930601 10-Q 1 a2172168z10-q.htm 10-Q

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TYCO INTERNATIONAL LTD. INDEX TO FORM 10-Q

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

FORM 10-Q

ý	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 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 July 28, 2006 was 2,014,714,423.

TYCO INTERNATIONAL LTD.

INDEX TO FORM 10-Q

		Page
Part I. Financial Information
Item 1.	Financial Statements
	Consolidated Statements of Income (Unaudited) for the quarters and nine months ended June 30, 2006 and July 1, 2005	1
	Consolidated Balance Sheets (Unaudited) as of June 30, 2006 and September 30, 2005	2
	Consolidated Statements of Cash Flows (Unaudited) for the nine months ended June 30, 2006 and July 1, 2005	3
	Consolidated Statements of Shareholders' Equity (Unaudited) for the nine months ended June 30, 2006 and July 1, 2005	4
	Notes to Consolidated Financial Statements (Unaudited)	5
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	40
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	62
Item 4.	Controls and Procedures	62
Part II. Other Information
Item 1.	Legal Proceedings	64
Item 1A.	Risk Factors	72
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	80
Item 3.	Defaults Upon Senior Securities	80
Item 4.	Submission of Matters to a Vote of Security Holders	80
Item 5.	Other Information	80
Item 6.	Exhibits	81
Signatures		82

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 Nine Months Ended
			June 30, 2006			July 1, 2005			June 30, 2006			July 1, 2005
Revenue from product sales			$	8,560		$	8,049		$	24,393		$	23,547
Service revenue				1,944			1,948			5,807			5,823

	Net revenue			10,504			9,997			30,200			29,370
Cost of product sales				5,885			5,279			16,560			15,431
Cost of services				1,172			1,191			3,555			3,585
Selling, general and administrative expenses				2,051			1,972			6,040			5,878
Restructuring and asset impairment charges, net				9			—			28			10
Separation costs				56			—			89			—
Losses (gains) on divestitures				2			(301	)		(39	)		(284	)

	Operating income			1,329			1,856			3,967			4,750
Interest income				25			24			95			92
Interest expense				(167	)		(198	)		(545	)		(622	)
Other expense, net				—			(179	)		(3	)		(915	)

	Income from continuing operations before income taxes and minority interest			1,187			1,503			3,514			3,305
Income taxes				(289	)		(425	)		(719	)		(1,109	)
Minority interest				(2	)		(2	)		(7	)		(6	)

	Income from continuing operations			896			1,076			2,788			2,190
(Loss) gain from discontinued operations, net of income taxes				(28	)		117			(328	)		(96	)

	Income before cumulative effect of accounting change			868			1,193			2,460			2,094
Cumulative effect of accounting change, net of income taxes				—			—			—			21

		Net income	$	868		$	1,193		$	2,460		$	2,115

Basic earnings per share:
	Income from continuing operations		$	0.44		$	0.53		$	1.38		$	1.09
	(Loss) gain from discontinued operations			(0.01	)		0.06			(0.16	)		(0.05	)

	Income before cumulative effect of accounting change			0.43			0.59			1.22			1.04
	Cumulative effect of accounting change			—			—			—			0.01

	Net income		$	0.43		$	0.59		$	1.22		$	1.05

Diluted earnings per share:
	Income from continuing operations		$	0.43		$	0.51		$	1.34		$	1.03
	(Loss) gain from discontinued operations			(0.01	)		0.05			(0.15	)		(0.04	)

	Income before cumulative effect of accounting change			0.42			0.56			1.19			0.99
	Cumulative effect of accounting change			—			—			—			0.01

	Net income		$	0.42		$	0.56		$	1.19		$	1.00

Weighted-average number of shares outstanding:
	Basic			2,024			2,015			2,015			2,011
	Diluted			2,072			2,149			2,097			2,179

See Notes to Consolidated Financial Statements.

TYCO INTERNATIONAL LTD.

CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(in millions, except share data)

			June 30, 2006		September 30, 2005
Assets
Current Assets:
	Cash and cash equivalents		$	2,120	$	3,212
	Accounts receivable, less allowance for doubtful accounts of $357 and $421, respectively			7,043		6,657
	Inventories			4,825		4,144
	Other current assets			3,371		3,081
	Assets held for sale			257		1,568

		Total current assets		17,616		18,662
Property, plant and equipment, net				9,183		9,092
Goodwill				24,705		24,557
Intangible assets, net				4,979		5,085
Other assets				5,209		5,225

		Total Assets	$	61,692	$	62,621

Liabilities and Shareholders' Equity
Current Liabilities:
	Current maturities of long-term debt		$	1,491	$	1,930
	Accounts payable			3,284		3,019
	Accrued and other current liabilities			6,013		6,540
	Liabilities held for sale			54		320

		Total current liabilities		10,842		11,809
Long-term debt				8,554		10,599
Other liabilities				7,861		7,702

		Total Liabilities		27,257		30,110

Commitments and Contingencies (Note 9)
Minority interest				49		61
Shareholders' Equity:
	Common shares, $0.20 par value, 4,000,000,000 shares authorized; 2,013,656,911 and 2,014,853,113 shares outstanding, net of 81,496,291 and 12,024,224 shares owned by subsidiaries, respectively			403		403
	Capital in excess:
		Share premium		8,742		8,540
		Contributed surplus		14,806		15,249
	Accumulated earnings			9,846		7,993
	Accumulated other comprehensive income			589		265

		Total Shareholders' Equity		34,386		32,450

		Total Liabilities and Shareholders' Equity	$	61,692	$	62,621

See Notes to Consolidated Financial Statements.

TYCO INTERNATIONAL LTD.

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(in millions)

				For the Nine Months Ended
				June 30, 2006			July 1, 2005
Cash Flows From Operating Activities:
Net income				$	2,460		$	2,115
	Loss from discontinued operations				328			96
	Cumulative effect of accounting change				—			(21	)

Income from continuing operations					2,788			2,190
Adjustments to reconcile net cash provided by operating activities:
	Gains on divestitures				(39	)		(281	)
	Depreciation and amortization				1,539			1,561
	Non-cash compensation expense				211			55
	Deferred income taxes				79			102
	Provision for losses on accounts receivable and inventory				127			187
	Loss on the retirement of debt				2			908
	Other non-cash items				36			20
	Changes in assets and liabilities, net of the effects of acquisitions and divestitures:
		Accounts receivable, net			(254	)		(761	)
		Inventories			(721	)		(302	)
		Accounts payable			228			211
		Accrued and other liabilities			(659	)		135
		Other			(144	)		19

			Net cash provided by operating activities		3,193			4,044

			Net cash (used in) provided by discontinued operating activities		(43	)		4

Cash Flows From Investing Activities:
Capital expenditures					(1,118	)		(974	)
Proceeds from disposal of assets					28			67
Acquisition of businesses, net of cash acquired					(155	)		(15	)
Acquisition of customer accounts (ADT dealer program)					(266	)		(227	)
Purchase accounting and holdback liabilities					(23	)		(29	)
Divestiture of businesses, net of cash retained					933			303
Decrease (increase) in investments					45			(153	)
Decrease in restricted cash					47			5
Other					—			(27	)

			Net cash used in investing activities		(509	)		(1,050	)

			Net cash used in discontinued investing activities		(89	)		(30	)

Cash Flows From Financing Activities:
Net repayment of short-term debt					(1,214	)		(1,916	)
Repayment of long-term debt, including debt tenders					(4	)		(2,516	)
Proceeds from exercise of share options					204			171
Dividends paid					(605	)		(427	)
Repurchase of common shares by subsidiary					(1,918	)		(1	)
Transfers to discontinued operations					(236	)		(136	)
Other					(20	)		(19	)

			Net cash used in financing activities		(3,793	)		(4,844	)

			Net cash provided by discontinued financing activities		144			43

Effect of currency translation on cash					17			33
Net decrease in cash and cash equivalents					(1,080	)		(1,800	)
Less: net increase in cash related to discontinued operations					(12	)		(17	)
Cash and cash equivalents at beginning of period					3,212			4,490

Cash and cash equivalents at end of period				$	2,120		$	2,673

See Notes to Consolidated Financial Statements.

TYCO INTERNATIONAL LTD.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (UNAUDITED)

For the Nine Months Ended June 30, 2006 and July 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									2,115						2,115
	Currency translation												(31	)		(31	)
	Unrealized loss on marketable securities												(2	)		(2	)
	Minimum pension liability, net of tax benefit of $8												(21	)		(21	)

	Total comprehensive income															2,061
Dividends declared										(604	)					(604	)
Share options exercised, including tax benefit of $36		9		2		169		36								207
Compensation expense		2						57								57
Exchange of convertible debt		2						24								24
Reporting calendar alignment										26						26
Other						2		1								3

Balance at July 1, 2005		2,023	$	404	$	8,486	$	15,437	$	7,277		$	462		$	32,066

		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												2,460						2,460
	Currency translation															327			327
	Minimum pension liability															(3	)		(3	)

	Total comprehensive income																		2,784
Dividends declared													(607	)					(607	)
Restricted share grants, net of forfeitures		4			1					(1	)								—
Share options exercised, including tax benefit of $1		12			2			202		1									205
Repurchase of common shares by subsidiary		(71	)		(14	)				(1,904	)								(1,918	)
Exchange of convertible debt		54			11					1,224									1,235
Compensation expense										217									217
Other										20									20

Balance at June 30, 2006		2,014		$	403		$	8,742	$	14,806		$	9,846		$	589		$	34,386

See Notes to Consolidated Financial Statements.

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 of normal recurring adjustments, necessary to summarize fairly the Company's financial position, results of operations and cash flows for the interim period. The results reported in these Consolidated Financial Statements should not be taken as indicative of results that may be expected for the entire year.

The income tax provision for the nine months ended June 30, 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 June 30, 2006 and July 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 nine months ended June 30, 2006 include incremental share-based compensation expense totaling

$38 million and $132 million, respectively. As such, basic and diluted earnings per share were impacted by $0.01 and $0.05 for the three and nine months ended June 30, 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 third 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.

In June 2006, FASB issued FIN No. 48, "Accounting for Uncertainty in Income Taxes—an interpretation of FASB Statement No. 109." This Interpretation introduces an accounting model under which companies will record uncertain tax positions in the financial statements, and establishes the criteria for recognizing, derecognizing and classifying such positions. Further, the interpretation addresses disclosure requirements relating to uncertain tax positions and requires a detailed roll-forward of the amounts of unrecognized tax benefits. FIN No. 48 is effective for Tyco in the first quarter of fiscal 2008. The Company is currently assessing the impact that FIN No. 48 will have on the results of its operations, financial position or cash flows.

2. Restructuring and Asset Impairment Charges, Net

During the nine months ended June 30, 2006, the Company recorded net restructuring and asset impairment charges of $30 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 $20 million and impairments of long-lived assets of $8 million. Restructuring charges during the nine months ended June 30, 2006 were $36 million, which includes $28 million of severance and $8 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 $13 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 nine months ended July 1, 2005, the Company recorded net restructuring and asset impairment charges of $13 million, which includes $3 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 $8 million and impairments of long-lived assets of $2 million. Restructuring charges during the nine months ended July 1, 2005 were $40 million, which consisted of $19 million of severance, $11 million of facility exit charges and $10 million of other charges. The Company completed restructuring activities announced in prior years for amounts less than originally anticipated and accordingly reversed $15 million of restructuring reserves. The Company also recorded other net non-cash credits of $17 million.

Restructuring Reserves

Restructuring reserves from September 30, 2005 to June 30, 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	$	—		$	6		$	51		$	82		$	139
Charges		29			1			1			5			36
Reversals		(1	)		(1	)		(3	)		(8	)		(13	)
Utilization		(15	)		(4	)		(16	)		(11	)		(46	)
Reclass/Transfers		—			—			(1	)		5			4

Balance at June 30, 2006	$	13		$	2		$	32		$	73		$	120

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

	June 30, 2006		September 30, 2005
Electronics	$	76	$	81
Fire and Security		35		45
Healthcare		—		1
Engineered Products and Services		6		9
Corporate		3		3

	$	120	$	139

At June 30, 2006, $44 million of restructuring reserves are included on the Consolidated Balance Sheets in accrued and other current liabilities and $76 million are included in other liabilities. At September 30, 2005, $52 million of restructuring reserves are included on the Consolidated Balance Sheets in accrued and other current liabilities and $87 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 could approximate $1.0 billion, largely for tax restructuring and debt refinancing. During the three and nine months ended June 30, 2006, the Company incurred $56 million and $89 million, respectively, 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 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 and discontinued operations 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 consummated the sale of the Plastics, Adhesives and Ludlow Coated Products businesses for $975 million in gross cash proceeds. Final working capital and other adjustments resulted in net proceeds of $882 million. The Company recognized a pre-tax loss on sale of approximately $7 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 during the twelve month period beginning on October 1, 2005.

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. The sale of the A&E Products Group was consummated in the third quarter of 2006 for gross cash proceeds of $5 million. The Company recognized an additional pre-tax loss on sale of $3 million.

During the third quarter of 2006, the Company approved a plan to divest the Printed Circuit Group ("PCG") business, a component of the Electronics segment. At June 30, 2006, the PCG business met the held for sale and discontinued operations criteria and was included in discontinued operations in all periods presented, see Note 16.

During the nine months ended July 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 nine months ended July 1, 2005, the Company divested eight businesses that were reported as discontinued operations and reported pre-tax losses on sales of $66 million.

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

	For the Nine Months Ended
	June 30, 2006			July 1, 2005
Net revenue	$	1,088		$	1,914
Income from discontinued operations		10			52
Loss on sale of discontinued operations		(311	)		(267	)
Income taxes		(27	)		119

Loss from discontinued operations, net of income taxes	$	(328	)	$	(96	)

Losses (gains) on divestitures

During the nine months ended June 30, 2006, the Company divested five businesses that were reported as continuing operations in Fire and Security and Healthcare. The Company recorded net gains on divestitures of $45 million in connection with the divestiture of these businesses, less $6 million of divestiture charges related to the write-down to estimated fair value and costs to sell certain other held for sale businesses.

In November 2004, Tyco agreed to sell the Tyco Global Network ("TGN") business, its undersea fiber optic telecommunication network. The sale was consummated on June 30, 2005. As part of the sale transaction, Tyco received gross cash proceeds of $130 million, and the purchaser assumed certain liabilities. In connection with this sale, Tyco recorded a $305 million pre-tax gain which is reflected in losses (gains) on divestitures in the Consolidated Statements of Income for the nine months ended July 1, 2005. The Company has presented the operations of the TGN in continuing operations as the criteria for discontinued operations were not met.

During the nine months ended July 1, 2005, the Company divested nine other 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 $24 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):

		June 30, 2006		September 30, 2005
Accounts receivable, net		$	84	$	300
Inventories			56		237
Other current assets			2		22
Long-lived assets including goodwill, property, plant and equipment and intangibles, net			112		1,000
Other non-current assets			3		9

	Total assets	$	257	$	1,568

Accounts payable		$	35	$	140
Accrued and other current liabilities			19		158
Other liabilities			—		22

	Total liabilities	$	54	$	320

Acquisitions

During the nine months ended June 30, 2006, Tyco's Healthcare segment acquired over 90% ownership in Floreane Medical Implants, S.A. ("Floreane") for approximately $123 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 $32 million.

During the nine months ended July 1, 2005, the Company completed five acquisitions for an aggregate cost of $15 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 June 30, 2006, $45 million of acquisition liabilities remained on the Consolidated Balance Sheets, of which $16 million are included in accrued and other current liabilities and $29 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 nine months ended June 30, 2006 and July 1, 2005, the Company paid $97 million ($23 million reported in continuing operations and $74 million reported in discontinued operations) and $29 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 June 30, 2006, holdback liabilities on our Consolidated Balance Sheets were $72 million, of which $8 million are included in accrued and other current liabilities and $64 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. Approximately $52 million and $134 million of the total holdback liabilities at June 30, 2006 and September 30, 2005, respectively, are retained liabilities of discontinued operations.

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 nine months ended July 1, 2005.

6. Earnings Per Share

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

		Quarter Ended June 30, 2006					Quarter Ended July 1, 2005
		Income		Shares	Per Share		Income		Shares	Per Share
Basic earnings per share:
	Income from continuing operations	$	896	2,024	$	0.44	$	1,076	2,015	$	0.53
	Share options, restricted share awards and deferred stock units		—	14				—	14
	Exchange of convertible debt		4	34				16	120

Diluted earnings per share:
	Income from continuing operations, giving effect to dilutive adjustments	$	900	2,072	$	0.43	$	1,092	2,149	$	0.51

		Nine Months Ended June 30, 2006					Nine Months Ended July 1, 2005
		Income		Shares	Per Share		Income		Shares	Per Share
Basic earnings per share:
	Income from continuing operations	$	2,788	2,015	$	1.38	$	2,190	2,011	$	1.09
	Share options, restricted share awards and deferred stock units		—	16				—	18
	Exchange of convertible debt		26	66				61	150

Diluted earnings per share:
	Income from continuing operations, giving effect to dilutive adjustments	$	2,814	2,097	$	1.34	$	2,251	2,179	$	1.03

The computation of diluted earnings per common share for the quarter and nine months ended June 30, 2006 excludes the effect of the potential exercise of options to purchase approximately 88 million shares for both periods because the effect would be anti-dilutive.

The computation of diluted earnings per common share for the quarter and nine months ended July 1, 2005 excludes the effect of the potential exercise of options to purchase approximately 76 million and 73 million shares, respectively, because the effect would be anti-dilutive.

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		—		(28	)		(14	)		3		(39	)
Acquisitions (divestitures)		9		(6	)		49			1		53
Currency translation		12		66			13			43		134

Balance at June 30, 2006	$	7,416	$	8,064		$	6,021		$	3,204	$	24,705

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

		June 30, 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	$	5,190	$	2,923	12 years	$	4,974	$	2,638	12 years
	Intellectual property		3,011		1,123	21 years		2,921		992	20 years
	Other		210		71	27 years		211		70	27 years

	Total	$	8,411	$	4,117	16 years	$	8,106	$	3,700	16 years

Non-Amortizable:
	Intellectual property	$	653				$	652
	Other		32					27

	Total	$	685				$	679

Intangible asset amortization for the quarters ended June 30, 2006 and July 1, 2005 was $162 million and $163 million, respectively. Intangible asset amortization for each of the nine months ended June 30, 2006 and July 1, 2005 was $488 million and $489 million, respectively. The estimated amortization expense on intangible assets currently owned by the Company is expected to be approximately $150 million for the remainder of 2006, $600 million for 2007, $550 million for 2008, $500 million for 2009, $400 million for 2010, and $350 million for 2011.

8. Debt

Debt was as follows ($ in millions):

	June 30, 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⁽¹⁾		753		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		859		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		369		353
6.0% notes due 2013		997		996
7.0% debentures due 2013		87		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		516		502
Other⁽¹⁾⁽²⁾		245		587

Total debt		10,045		12,529
Less current portion		1,491		1,930

Long-term debt	$	8,554	$	10,599

⁽¹⁾: These instruments, plus $38 million of the amount shown as other, comprise the current portion of long-term debt as of June 30, 2006.
⁽²⁾: These instruments, plus $230 million of the amount shown as other, comprise the current portion of long-term debt as of September 30, 2005.

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 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.

As of June 30, 2006, TIGSA had $750 million outstanding of its 3.125% convertible senior debentures due 2023 with a 2015 put option ("the 3.125% convertible senior debentures"). These debentures are fully and unconditionally guaranteed by Tyco and, at any time, holders may convert each $1,000 principal amount of the debentures into 45.9821 Tyco common shares prior to the stated maturity at a rate of $21.7476 per share. Additionally, holders of the 3.125% convertible senior debentures may require TIGSA to purchase all or a portion of their debentures on January 15, 2015. If the option is exercised, TIGSA must repurchase the debentures at par plus accrued interest, and may elect to repurchase the securities for cash, Tyco common shares, or some combination thereof. TIGSA may redeem for cash some or all of the 3.125% convertible senior debentures at any time on or after January 20, 2008, for an amount equal to the redemption price.

During the nine months ended June 30, 2006, the Company utilized $1.0 billion in cash for scheduled repayments of public notes.

9. Commitments and Contingencies

At June 30, 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 and General Counsel and former Chief Financial 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. While the Company may from time to time seek to engage plaintiff's counsel in settlement discussions, 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.

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. On April 25, 2006, the United States District Court for the Southern District of New York entered a final judgment in which the Company was ordered to pay $1 in disgorgement and a fine of $50 million. During the quarter, the Company satisfied the judgment which was accrued in 2005.

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. In 2005, Tyco 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. 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 sensors for the previously sold products.

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 scheduled the new trial on the damages for October 10, 2006.

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.

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.

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 denied U.S. Surgical's motion to set aside the jury's finding on willfulness and 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 was $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 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 appealed the summary judgment ruling. On May 15, 2006, the United

States Court of Appeals for the Federal Circuit issued a decision on the appeal vacating the district court's grant of summary judgment and remanding the case for further proceedings. The district court has scheduled a status hearing on this case for October 16, 2006. It is not possible to estimate the amount of loss or probable losses, if any, that might result from an adverse resolution of this matter.

Environmental Matters

Tyco is involved in various stages of investigation and cleanup related to environmental remediation matters at a number of sites. The ultimate cost of site cleanup is difficult to predict given the uncertainties regarding the extent of the required cleanup, the interpretation of applicable laws and regulations and alternative cleanup methods. As of June 30, 2006, Tyco concluded that it was probable that it would incur remedial costs in the range of approximately $127 million to $406 million. As of June 30, 2006, Tyco concluded that the best estimate within this range is approximately $189 million, of which $32 million is included in accrued and other current liabilities and $157 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 $189 million, 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.

Tyco has recorded asset retirement obligations for the estimated future costs associated with legal obligations to decommission two nuclear facilities. As of June 30, 2006 and September 30, 2005, the Company's asset retirement obligations were $74 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 June 30, 2006, there were approximately 15,000 asbestos liability cases pending against the Company and its subsidiaries.

The Company estimates its pending asbestos claims and claims that were incurred but not reported, as well as related insurance and indemnification recoveries. 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.

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. While the timing and ultimate resolution of the remaining matters is uncertain, the Company anticipates that certain of these matters could be resolved over the next several quarters. Amounts related to these tax adjustments and other tax contingencies that management has assessed as probable and estimable have been recorded.

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; and (iv) costs for demobilization and termination of the contract. The City of Phoenix filed a Motion to Dismiss rather than filing an answer to the First Amended Complaint on May 18, 2006. The Court has not ruled on this motion.

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 Presiding Judge of Maricopa County Superior Court on July 11, 2006 consolidated all of the pending lawsuits related to this dispute on the Court's complex litigation docket. 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.

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 Nine Months Ended
		June 30, 2006			July 1, 2005			June 30, 2006			July 1, 2005
Service cost		$	6		$	5		$	18		$	16
Interest cost			31			32			94			96
Expected return on plan assets			(41	)		(38	)		(123	)		(115	)
Amortization of prior service cost			—			1			2			3
Amortization of net actuarial loss			13			10			38			30

	Net periodic benefit cost	$	9		$	10		$	29		$	30

		Non-U.S. Plans
		For the Quarters Ended						For the Nine Months Ended
		June 30, 2006			July 1, 2005			June 30, 2006			July 1, 2005
Service cost		$	28		$	26		$	86		$	78
Interest cost			34			34			102			102
Expected return on plan assets			(31	)		(27	)		(93	)		(81	)
Amortization of prior service benefit			—			—			(1	)		—
Amortization of net actuarial loss			13			11			39			33
Curtailment/settlement loss			—			(5	)		—			(5	)

	Net periodic benefit cost	$	44		$	39		$	133		$	127

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 nine months ended June 30, 2006, the Company has contributed $88 million to its U.S. and non-U.S. pension plans.

During the nine months ended July 1, 2005, the Company completed the merger of certain pension plans in the United Kingdom. As a result, 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 Nine Months Ended
		June 30, 2006			July 1, 2005			June 30, 2006			July 1, 2005
Service cost		$	1		$	1		$	3		$	2
Interest cost			4			5			12			15
Amortization of prior service benefit			(1	)		(1	)		(3	)		(3	)
Amortization of net actuarial loss			—			2			—			5

	Net periodic postretirement benefit cost	$	4		$	7		$	12		$	19

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 nine months ended June 30, 2006 include incremental share-based compensation expense of $38 million and $132 million, respectively. The total share-based compensation cost of $64 million and $216 million for the quarter and nine months ended June 30, 2006, respectively, has been included in the Consolidated Statements of Income within selling, general and administrative expenses. For the quarter and nine months ended June 30, 2006, the Company has recognized a related tax benefit associated with its share-based compensation arrangements totaling $16 million and $51 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 nine months ended July 1, 2005 would have been as follows ($ in millions, except per share data):

		Quarter Ended July 1, 2005			Nine Months Ended July 1, 2005
Net income, as reported		$	1,193		$	2,115
Add: Employee compensation expense for share options included in reported net income, net of income taxes			2			9
Less: Total employee compensation expense for share options determined under fair value method, net of income taxes			(39	)		(122	)

Net income, pro forma		$	1,156		$	2,002

Earnings per share:
	Basic—as reported	$	0.59		$	1.05
	Basic—pro forma		0.57			1.00
	Diluted—as reported		0.56			1.00
	Diluted—pro forma		0.55			0.95

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 Ltd. 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 (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 June 30, 2006, there were approximately 170 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 June 30, 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 June 30, 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 June 30, 2006, there were approximately 34 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 June 30, 2006, there were approximately 2 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 June 30, 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.

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 Quarter Ended			For the Nine Months Ended
	June 30, 2006			June 30, 2006			July 1, 2005
Expected stock price volatility		33	%		34	%		35	%
Risk free interest rate		5.0	%		4.3	%		3.9	%
Expected life of options (years)		4.5			4.2			4.1
Expected annual dividend per share	$	0.40		$	0.40		$	0.40

No new grants were made for the quarter ended July 1, 2005. The weighted-average grant-date fair value of options granted during the quarter ended June 30, 2006 was $8.41. The weighted-average grant-date fair values of options granted during the nine months ended June 30, 2006 and July 1, 2005 were $9.00 and $11.06, respectively. The total intrinsic value of options exercised during the quarter and nine months ended June 30, 2006 was $28 million and $92 million, respectively. The total intrinsic value of options exercised during the quarter and nine months ended July 1, 2005 was $36 million and $120 million, respectively. The excess cash tax benefit classified as a financing cash inflow for the nine months ended June 30, 2006 was not significant.

A summary of option activity as of June 30, 2006 and changes during the nine 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	10,783,427			29.02
Exercised	(9,826,551	)		18.33
Expired	(11,334,098	)		43.21
Forfeited	(3,630,183	)		32.03

Outstanding at June 30, 2006	126,495,129			32.68	5.9	$	394
Vested and unvested expected to vest at June 30, 2006	124,869,652			32.70	5.9		394
Exercisable at June 30, 2006	98,819,899			33.34	5.2		362

As of June 30, 2006, there was $198 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 nine months ended June 30, 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.

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 June 30, 2006 and changes during the nine 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	6,373,900			28.86
Vested	(1,102,882	)		18.96
Forfeited	(1,053,252	)		28.19

Nonvested at June 30, 2006	11,566,058			29.64

The weighted-average grant-date fair value of shares granted during the quarter and nine months ended July 1, 2005 was $31.32 and $35.58, respectively. The weighted-average grant-date fair value of shares vested during the quarter and nine months ended June 30, 2006 was $8 million and $21 million, respectively. As of June 30, 2006, there was $206 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 2.1 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 June 30, 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 TGN business, which was sold in the third quarter of 2005, are presented within

Corporate for the quarter and nine months ended July 1, 2005. Selected information by business segment is presented in the following tables ($ in millions):

			For the Quarters Ended					For the Nine Months Ended
			June 30, 2006			July 1, 2005		June 30, 2006			July 1, 2005
Net revenue:
	Electronics		$	3,319		$	3,014	$	9,361		$	8,805
	Fire and Security			2,925			2,853		8,591			8,609
	Healthcare			2,464			2,440		7,160			7,128
	Engineered Products and Services			1,796			1,679		5,088			4,799
	Corporate⁽¹⁾			—			11		—			29

		Net revenue	$	10,504		$	9,997	$	30,200		$	29,370

Operating income:
	Electronics		$	478		$	512	$	1,326		$	1,421
	Fire and Security			315			301		832			895
	Healthcare			576			678		1,694			1,948
	Engineered Products and Services			99			178		460			515
	Corporate⁽²⁾			(139	)		187		(345	)		(29	)

		Operating income	$	1,329		$	1,856	$	3,967		$	4,750

⁽¹⁾: Net revenue for the quarter and nine months ended July 1, 2005 relates to the TGN business.
⁽²⁾: Includes gain on sale of the TGN of $307 million and $305 million for the quarter and nine months ended July 1, 2005, respectively. In addition, includes operating losses of $14 million and $54 million, respectively, related to the TGN business for the quarter and nine months ended July 1, 2005.

13. Supplementary Balance Sheet and Cash Flow Information

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

		June 30, 2006			September 30, 2005
Purchased materials and manufactured parts		$	1,180		$	1,020
Work in process			1,092			937
Finished goods			2,553			2,187

	Inventories	$	4,825		$	4,144

Land		$	529		$	520
Buildings			3,183			3,094
Subscriber systems			4,841			4,745
Machinery and equipment			10,158			9,731
Construction in progress			1,004			814
Accumulated depreciation			(10,532	)		(9,812	)

	Property, plant and equipment, net	$	9,183		$	9,092

Accrued expenses		$	3,691		$	4,339
Other current liabilities			2,322			2,201

	Accrued and other current liabilities	$	6,013		$	6,540

Long-term pension and post-retirement liabilities		$	1,810		$	1,704
Other long-term liabilities			6,051			5,998

	Other liabilities	$	7,861		$	7,702

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

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

	For the Nine Months Ended
	June 30, 2006		July 1, 2005
Conversion of debt to common shares	$	1,235	$	24

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 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 June 30, 2006, the Company expects this obligation to be $54 million, which is recorded in the accompanying Consolidated Balance Sheets, based on an estimate of the fair value of the vessels performed by management with the assistance of a third-party valuation.

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 nine months ended June 30, 2006 ($ in millions):

	For the Quarter Ended June 30, 2006			For the Nine Months Ended June 30, 2006
Balance at beginning of period	$	167		$	193
Accruals for warranties issued during the period		14			42
Changes in estimates related to pre-existing warranties		97			90
Settlements made		(21	)		(67	)
Currency translation		2			1

Balance at June 30, 2006	$	259		$	259

In 2001, Engineered Products and Services initiated a Voluntary Replacement Program ("VRP") associated with the acquisition of Central Sprinkler. The VRP relates to the replacement of certain Model GB fire sprinkler heads which were originally manufactured by Central Sprinkler prior to Tyco's acquisition. Under this program, the sprinkler heads are being replaced over a 5-7 year period free of charge to property owners. In the third quarter of 2006, the Company completed a comprehensive review of reported claims, recent claim rates and cost trends and further assessed the future of the program. The Company determined that an additional liability was necessary in order to satisfy the Company's obligation under the VRP program. As a result, the Company recorded a $100 million charge which was reflected in cost of sales. Settlements during the quarter and nine months ended June 30, 2006 include cash expenditures of $8 million and $29 million, respectively, related to the VRP.

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.

CONDENSED CONSOLIDATING STATEMENT OF INCOME

For the Quarter Ended June 30, 2006

(in millions)

		Tyco International Ltd.			Tyco International Group S.A.			Other Subsidiaries			Consolidating Adjustments			Total
Net revenue		$	—		$	—		$	10,504		$	—		$	10,504
Cost of product sales			—			—			5,885			—			5,885
Cost of services			—			—			1,172			—			1,172
Selling, general and administrative expenses			16			(41	)		2,076			—			2,051
Restructuring and asset impairment charges, net			—			—			9			—			9
Separation costs						—			56			—			56
Losses on divestitures			—			—			2			—			2

	Operating (loss) income		(16	)		41			1,304			—			1,329
Interest income			—			6			19			—			25
Interest expense			—			(152	)		(15	)		—			(167	)
Equity in net income of subsidiaries			1,221			802			—			(2,023	)		—
Intercompany interest and fees			(337	)		147			190			—			—

	Income from continuing operations before income taxes and minority interest		868			844			1,498			(2,023	)		1,187
Income taxes			—			(1	)		(288	)		—			(289	)
Minority interest			—			—			(2	)		—			(2	)

	Income from continuing operations		868			843			1,208			(2,023	)		896
Loss from discontinued operations, net of income taxes			—			—			(28	)		—			(28	)

	Net income	$	868		$	843		$	1,180		$	(2,023	)	$	868

CONDENSED CONSOLIDATING STATEMENT OF INCOME

For the Quarter Ended July 1, 2005

(in millions)

		Tyco International Ltd.			Tyco International Group S.A.			Other Subsidiaries			Consolidating Adjustments			Total
Net revenue		$	—		$	—		$	9,997		$	—		$	9,997
Cost of product sales			—			—			5,279			—			5,279
Cost of services			—			—			1,191			—			1,191
Selling, general and administrative expenses			11			—			1,961			—			1,972
Gains on divestitures			—			—			(301	)		—			(301	)

	Operating (loss) income		(11	)		—			1,867			—			1,856
Interest income			1			7			16			—			24
Interest expense			—			(178	)		(20	)		—			(198	)
Other expense, net			—			(179	)		—			—			(179	)
Equity in net income of subsidiaries			1,494			1,040			—			(2,534	)		—
Intercompany interest and fees			(291	)		351			(60	)		—			—

	Income from continuing operations before income taxes and minority interest		1,193			1,041			1,803			(2,534	)		1,503
Income taxes			—			(1	)		(424	)		—			(425	)
Minority interest			—			—			(2	)		—			(2	)

	Income from continuing operations		1,193			1,040			1,377			(2,534	)		1,076
Gain from discontinued operations, net of income taxes			—			—			117			—			117

	Net income	$	1,193		$	1,040		$	1,494		$	(2,534	)	$	1,193

CONDENSED CONSOLIDATING STATEMENT OF INCOME

For the Nine Months Ended June 30, 2006

(in millions)

		Tyco International Ltd.			Tyco International Group S.A.			Other Subsidiaries			Consolidating Adjustments			Total
Net revenue		$	—		$	—		$	30,200		$	—		$	30,200
Cost of product sales			—			—			16,560			—			16,560
Cost of services			—			—			3,555			—			3,555
Selling, general and administrative expenses			39			43			5,958			—			6,040
Restructuring and asset impairment charges, net			—			—			28			—			28
Separation costs			9			—			80			—			89
Gains on divestitures			—			—			(39	)		—			(39	)

	Operating (loss) income		(48	)		(43	)		4,058			—			3,967
Interest income			1			23			71			—			95
Interest expense			—			(486	)		(59	)		—			(545	)
Other expense, net			—			—			(3	)		—			(3	)
Equity in net income of subsidiaries			3,534			2,383			—			(5,917	)		—
Intercompany interest and fees			(1,027	)		465			562			—			—

	Income from continuing operations before income taxes and minority interest		2,460			2,342			4,629			(5,917	)		3,514
Income taxes			—			(1	)		(718	)		—			(719	)
Minority interest			—			—			(7	)		—			(7	)

	Income from continuing operations		2,460			2,341			3,904			(5,917	)		2,788
Loss from discontinued operations, net of income taxes			—			—			(328	)		—			(328	)

	Net income	$	2,460		$	2,341		$	3,576		$	(5,917	)	$	2,460

CONDENSED CONSOLIDATING STATEMENT OF INCOME

For the Nine Months Ended July 1, 2005

(in millions)

		Tyco International Ltd.			Tyco International Group S.A.			Other Subsidiaries			Consolidating Adjustments			Total
Net revenue		$	—		$	—		$	29,370		$	—		$	29,370
Cost of product sales			—			—			15,431			—			15,431
Cost of services			—			—			3,585			—			3,585
Selling, general and administrative expenses			93			1			5,784			—			5,878
Restructuring and asset impairment charges, net			—			—			10			—			10
Gains on divestitures			—			—			(284	)		—			(284	)

	Operating (loss) income		(93	)		(1	)		4,844			—			4,750
Interest income			1			23			68			—			92
Interest expense			—			(559	)		(63	)		—			(622	)
Other expense, net			—			(908	)		(7	)		—			(915	)
Equity in net income of subsidiaries			3,151			1,749			—			(4,900	)		—
Intercompany interest and fees			(944	)		1,446			(502	)		—			—

	Income from continuing operations before income taxes and minority interest		2,115			1,750			4,340			(4,900	)		3,305
Income taxes			—			(1	)		(1,108	)		—			(1,109	)
Minority interest			—			—			(6	)		—			(6	)

	Income from continuing operations		2,115			1,749			3,226			(4,900	)		2,190
Loss from discontinued operations, net of income taxes			—			—			(96	)		—			(96	)

	Income before cumulative effect of accounting change		2,115			1,749			3,130			(4,900	)		2,094
Cumulative effect of accounting change, net of income taxes			—			—			21			—			21

	Net income	$	2,115		$	1,749		$	3,151		$	(4,900	)	$	2,115

CONDENSED CONSOLIDATING BALANCE SHEET

June 30, 2006

(in millions)

			Tyco International Ltd.		Tyco International Group S.A.		Other Subsidiaries			Consolidating Adjustments			Total
Assets
Current Assets:
	Cash and cash equivalents		$	6	$	543	$	1,571		$	—		$	2,120
	Accounts receivable, net			—		—		7,043			—			7,043
	Inventories			—		—		4,825			—			4,825
	Intercompany receivables			1,506		45		11,302			(12,853	)		—
	Other current assets			25		40		3,306			—			3,371
	Assets held for sale			—		—		257			—			257

		Total current assets		1,537		628		28,304			(12,853	)		17,616
Property, plant and equipment, net				—		—		9,183			—			9,183
Goodwill				—		—		24,705			—			24,705
Intangible assets, net				—		—		4,979			—			4,979
Investment in subsidiaries				59,846		33,219		—			(93,065	)		—
Intercompany loans receivable				—		20,533		27,844			(48,377	)		—
Other assets				25		133		5,051			—			5,209

		Total Assets	$	61,408	$	54,513	$	100,066		$	(154,295	)	$	61,692

Liabilities and Shareholders' Equity
Current Liabilities:
	Current maturities of long-term debt		$	—	$	1,453	$	38		$	—		$	1,491
	Accounts payable			3		—		3,281			—			3,284
	Accrued and other current liabilities			209		209		5,595			—			6,013
	Intercompany payables			7,803		3,499		1,551			(12,853	)		—
	Liabilities held for sale			—		—		54			—			54

		Total current liabilities		8,015		5,161		10,519			(12,853	)		10,842
Long-term debt				1		7,969		584			—			8,554
Intercompany loans payable				18,934		8,910		20,533			(48,377	)		—
Other liabilities				72		119		7,670			—			7,861

		Total Liabilities		27,022		22,159		39,306			(61,230	)		27,257
Minority interest				—		—		49			—			49
Shareholders' Equity:
	Preference Shares			—		—		13,070			(13,070	)		—
	Common shares			419		1		(16	)		(1	)		403
	Other shareholders' equity			33,967		32,353		47,657			(79,994	)		33,983

		Total Shareholders' Equity		34,386		32,354		60,711			(93,065	)		34,386

		Total Liabilities and Shareholders' Equity	$	61,408	$	54,513	$	100,066		$	(154,295	)	$	61,692

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	$	2,005		$	—		$	3,212
	Accounts receivable, net			—		—		6,657			—			6,657
	Inventories			—		—		4,144			—			4,144
	Intercompany receivables			1,847		37		11,382			(13,266	)		—
	Other current assets			21		103		2,957			—			3,081
	Assets held for sale			—		—		1,568			—			1,568

		Total current assets		1,871		1,344		28,713			(13,266	)		18,662
Property, plant and equipment, net				—		—		9,092			—			9,092
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		5,037			—			5,225

		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	$	228		$	—		$	1,930
	Accounts payable			9		—		3,010			—			3,019
	Accrued and other current liabilities			279		367		5,894			—			6,540
	Intercompany payables			8,271		3,111		1,884			(13,266	)		—
	Liabilities held for sale			—		—		320			—			320

		Total current liabilities		8,561		5,178		11,336			(13,266	)		11,809
Long-term debt				—		10,008		591			—			10,599
Intercompany loans payable				18,615		8,639		21,577			(48,831	)		—
Other liabilities				67		8		7,627			—			7,702

		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

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

For the Nine Months Ended June 30, 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	$	117		$	(1,087	)	$	4,163		$	—		$	3,193
	Net cash used in discontinued operating activities		—			—			(43	)		—			(43	)
Cash Flows From Investing Activities:
Capital expenditures			—			—			(1,118	)		—			(1,118	)
Proceeds from disposal of assets			—			—			28			—			28
Acquisition of businesses, net of cash acquired			—			—			(155	)		—			(155	)
Acquisition of customer accounts (ADT dealer program)			—			—			(266	)		—			(266	)
Purchase accounting and holdback liabilities			—			—			(23	)		—			(23	)
Divestiture of businesses, net of cash retained			—			—			933			—			933
Decrease in intercompany loans			—			1,328			—			(1,328	)		—
Decrease (increase) in investments			—			99			(54	)		—			45
Decrease in restricted cash			—			—			47			—			47

	Net cash provided by (used in) investing activities		—			1,427			(608	)		(1,328	)		(509	)
	Net cash used in discontinued investing activities		—			—			(89	)		—			(89	)
Cash Flows From Financing Activities:
Net repayments of debt			(1	)		(1,001	)		(216	)		—			(1,218	)
Proceeds from exercise of share options			173			—			31			—			204
Dividends paid			(605	)		—			—			—			(605	)
Repurchase of common shares by subsidiary			—			—			(1,918	)		—			(1,918	)
Loan borrowings from (repayments to) affiliates			319			—			(1,647	)		1,328			—
Transfer to discontinued operations			—			—			(236	)		—			(236	)
Other						—			(20	)		—			(20	)

	Net cash used in financing activities		(114	)		(1,001	)		(4,006	)		1,328			(3,793	)
	Net cash provided by discontinued financing activities		—			—			144			—			144
Effect of currency translation on cash			—			—			17			—			17
Net increase (decrease) in cash and cash equivalents			3			(661	)		(422	)		—			(1,080	)
Less: net increase in cash related to discontinued operations			—			—			(12	)		—			(12	)
Cash and cash equivalents at beginning of period			3			1,204			2,005			—			3,212

Cash and cash equivalents at end of period		$	6		$	543		$	1,571		$	—		$	2,120

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

For the Nine Months Ended July 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	$	425		$	1,693		$	1,926		$	—		$	4,044
	Net cash provided by discontinued operating activities		—			—			4			—			4
Cash Flows From Investing Activities:
Capital expenditures			—			—			(974	)		—			(974	)
Proceeds from disposal of assets			—			—			67			—			67
Acquisition of businesses, net of cash acquired			—			—			(15	)		—			(15	)
Acquisition of customer accounts (ADT dealer program)			—			—			(227	)		—			(227	)
Purchase accounting and holdback liabilities			—			—			(29	)		—			(29	)
Divestiture of businesses, net of cash retained			—			—			303			—			303
Decrease in intercompany loans			—			1,141			—			(1,141	)		—
Increase in investments			—			—			(153	)		—			(153	)
Decrease in restricted cash			—			—			5			—			5
Other			—			—			(27	)		—			(27	)

	Net cash provided by (used in) investing activities		—			1,141			(1,050	)		(1,141	)		(1,050	)
	Net cash used in discontinued investing activities		—			—			(30	)		—			(30	)
Cash Flows From Financing Activities:
Net repayments of debt			—			(4,318	)		(114	)		—			(4,432	)
Proceeds from exercise of share options			—			—			171			—			171
Dividends paid			(427	)		—			—			—			(427	)
Loan repayments to affiliates			—			—			(1,141	)		1,141			—
Repurchase of common shares by subsidiary			—			—			(1	)		—			(1	)
Transfer to discontinued operations			—			—			(136	)		—			(136	)
Other			2			(2	)		(19	)		—			(19	)

	Net cash used in financing activities		(425	)		(4,320	)		(1,240	)		1,141			(4,844	)
	Net cash provided by discontinued financing activities		—			—			43			—			43
Effect of currency translation on cash			—			—			33			—			33
Net decrease in cash and cash equivalents			—			(1,486	)		(314	)		—			(1,800	)
Less: net increase in cash related to discontinued operations			—			—			(17	)		—			(17	)
Cash and cash equivalents at beginning of period			1			2,452			2,037			—			4,490

Cash and cash equivalents at end of period		$	1		$	966		$	1,706		$	—		$	2,673

16. Subsequent Events

In July 2006, the Company repurchased an additional 4.9 million of its common shares for $134 million under the $2.0 billion share repurchase program approved by the Board of Directors in May 2006.

On July 18, 2006, Tyco Healthcare entered into a definitive agreement to acquire Confluent Surgical, Inc. ("Confluent") for $245 million. Confluent is a leading developer and supplier of polymer-based technology used in sprayable surgical sealants and anti-adhesion products. The transaction is expected to close by the end of August 2006. Tyco expects to incur a charge in its fourth quarter of 2006 to write-off in-process research and development.

On July 31, 2006, TIGSA borrowed $700 million under its $1.5 billion 3-year revolving bank credit facility expiring December 21, 2007. The entire proceeds of the borrowing were used by TIGSA to repay its 5.8% public notes due 2006 at their maturity on August 1, 2006.

On August 2, 2006, Tyco Healthcare announced that it had agreed to acquire 37.25% of the share capital of Airox S.A. ("Airox") for approximately $40 million. Airox is a leading European company in the home respiratory ventilation systems business. Tyco will pay approximately $21.60 in cash per Airox share. The transaction is expected to close by October 31, 2006. Upon completion of the initial share purchase transaction, Tyco will launch a mandatory tender offer for the remaining Airox shares at the same price (approximately $21.60 per share). The initial share purchase and the subsequent tender offer are expected to total approximately $108 million.

On August 3, 2006, the Company entered into a definitive agreement to divest its PCG business, currently part of Tyco Electronics, for $226 million. This transaction has been approved by the Board of Directors and is expected to be completed during this calendar year.

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 nine months ended July 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.

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 nine months of 2006, we repurchased 71 million of our common shares for $1.9 billion under our share repurchase programs. We completed the $1.5 billion share repurchase program previously approved by the Board of Directors with the repurchase of 44.5 million of our common shares for $1.2 billion and we repurchased 26.5 million of our common shares for $715 million under the new $2.0 billion share repurchase program approved by the Board of Directors in May 2006. 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 an independent entity.

During the nine months ended June 30, 2006, we completed the sale of our Plastics and Adhesives segment. Our Plastics, Adhesives and Ludlow Coated Products businesses were sold for net proceeds of $882 million and the A&E Products Group was sold for $5 million in gross cash proceeds. Additionally, during the third quarter of 2006, the Company approved a plan to divest the Printed Circuit Group ("PCG") business, a component of the Electronics segment. The PCG business met the held for sale and discontinued operations criteria at June 30, 2006. As such, the operations of our Plastics and Adhesives segment and our PCG business are reflected as discontinued operations in all periods presented. Details related to the Company's divestiture program and the related discontinued operations are discussed in "Discontinued Operations and Divestitures."

During the nine months ended June 30, 2006, TIGSA converted $1.2 billion of its Series A 2.75% convertible senior debentures due 2018 with a 2008 put option (the "2.75% convertible senior debentures") into 54.4 million Tyco common shares and redeemed the remaining $1 million principal amount outstanding with cash. Additionally, we utilized $1.0 billion in cash for scheduled repayments of public notes and 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.

During the quarter ended June 30, 2006, TIGSA amended its $1.5 billion 3-year revolving bank credit facility to extend the maturity date from December 22, 2006 to December 21, 2007.

The United States Internal Revenue Service ("IRS") continues 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 second quarter of 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.

Operating Results

Net revenue and net income for the quarters and nine months ended June 30, 2006 and July 1, 2005 were as follows ($ in millions):

	For the Quarters Ended						For the Nine Months Ended
	June 30, 2006			July 1, 2005			June 30, 2006			July 1, 2005
Revenue from product sales	$	8,560		$	8,049		$	24,393		$	23,547
Service revenue		1,944			1,948			5,807			5,823

Net revenue	$	10,504		$	9,997		$	30,200		$	29,370

Operating income	$	1,329		$	1,856		$	3,967		$	4,750
Interest income		25			24			95			92
Interest expense		(167	)		(198	)		(545	)		(622	)
Other expense, net		—			(179	)		(3	)		(915	)

Income from continuing operations before income taxes and minority interest		1,187			1,503			3,514			3,305
Income taxes		(289	)		(425	)		(719	)		(1,109	)
Minority interest		(2	)		(2	)		(7	)		(6	)

Income from continuing operations		896			1,076			2,788			2,190
(Loss) gain from discontinued operations, net of income taxes		(28	)		117			(328	)		(96	)

Income before cumulative effect of accounting change		868			1,193			2,460			2,094
Cumulative effect of accounting change, net of income taxes		—			—			—			21

Net income	$	868		$	1,193		$	2,460		$	2,115

Net revenue increased $507 million, or 5.1%, for the third quarter and $830 million, or 2.8%, for the first nine months of 2006 as compared to the same periods last year. Foreign currency exchange rates favorably affected the third quarter by $9 million but were unfavorable by $472 million for the first nine months of 2006. The net impact of acquisitions and divestitures negatively impacted the quarter and the first nine months by $14 million and $121 million, respectively.

Operating income decreased $527 million, or 28.4%, for the third quarter while operating margin decreased 5.9 percentage points to 12.7%. Operating income decreased $783 million, or 16.5%, for the first nine months of 2006 while operating margin decreased 3.1 percentage points to 13.1%. Operating income was negatively impacted in both periods in 2006 by a $100 million charge relating to a Voluntary Replacement Program ("VRP") associated with the acquisition of Central Sprinkler discussed in "Guarantees" within "Off-Balance Sheet Arrangements". Foreign currency exchange rates favorably impacted operating income by $5 million for the third quarter but were unfavorable by $75 million for the first nine months of 2006. The third quarter and nine month periods were also negatively impacted by incremental stock option charges required under Statement of Financial Accounting Standards ("SFAS") No. 123R of $38 million and $132 million, respectively, and separation costs of $56 million and $89 million, respectively. During the third quarter and nine months ended 2006, we recorded net losses on divestitures of $2 million and net gains on divestitures of $39 million, respectively, primarily relating to the sale of a business within Healthcare. During the third quarter and nine months ended 2005, we recorded net gains on divestitures of $301 million and $284 million, respectively, primarily related to our sale of the TGN.

We continued to utilize cash to strengthen the balance sheet, as well as return capital to shareholders. During the first nine months of 2006, we reduced our debt to $10.0 billion by exchanging approximately $1.2 billion of convertible debt for 54.4 million common shares and retiring an additional

$1.0 billion of public notes with cash. Additionally, we used $1.9 billion to repurchase 71.0 million shares of common stock and paid $605 million of dividends to shareholders.

Segment Results:

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

Quarter Ended June 30, 2006 Compared to Quarter Ended July 1, 2005

Electronics

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

	For the Quarters Ended
	June 30, 2006			July 1, 2005
Revenue from product sales	$	3,267		$	2,969
Service revenue		52			45

Net revenue	$	3,319		$	3,014

Operating income	$	478		$	512
Operating margin		14.4	%		17.0	%

Net revenue for Electronics increased $305 million in the quarter ended June 30, 2006 over the quarter ended July 1, 2005. The increase in net revenue reflects volume growth which was broad based across customer-end markets, especially computer, communications, consumer electronics, household appliance, industrial machinery and premise wiring end markets. Changes in foreign currency exchange rates did not impact net revenue during the quarter ended June 30, 2006.

Operating income and operating margin for the quarter ended June 30, 2006 decreased as compared to the same period in the prior year due primarily to increased material costs, particularly copper and gold, of $108 million. Additionally, the current quarter includes an $8 million charge for stock option expense. 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
	June 30, 2006			July 1, 2005
Revenue from product sales	$	1,367		$	1,312
Service revenue		1,558			1,541

Net revenue	$	2,925		$	2,853

Operating income	$	315		$	301
Operating margin		10.8	%		10.6	%

Net revenue for Fire and Security increased $72 million in the quarter ended June 30, 2006 over the quarter ended July 1, 2005, primarily due to revenue increases at Worldwide Fire Services as a result of growth in electrical and mechanical contracting in North America. Worldwide Security also

increased operationally, although to a lesser extent, as a result of contracting revenues internationally. Additionally, foreign currency favorably impacted the quarter by $8 million. These increases were slightly offset by the negative impact of acquisitions and divestitures of $8 million.

Operating income increased $14 million in the quarter ended June 30, 2006 over the same period in the prior year as a result of higher margins and the benefit of cost reduction initiatives in Worldwide Fire Services. These increases were offset by lower gross margins within Worldwide Security and an $8 million charge for stock option expense.

Attrition rates for customers in our global electronic security services business decreased to 14.1% on a trailing twelve-month basis as of June 30, 2006, as compared to 14.4% as of March 31, 2006.

Healthcare

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

	For the Quarters Ended
	June 30, 2006			July 1, 2005
Revenue from product sales	$	2,449		$	2,423
Service revenue		15			17

Net revenue	$	2,464		$	2,440

Operating income	$	576		$	678
Operating margin		23.4	%		27.8	%

Net revenue for Healthcare increased $24 million in the quarter ended June 30, 2006 over the quarter ended July 1, 2005. This resulted primarily from increased revenue within Medical Devices and Supplies, largely driven by surgical product sales within the International division and to a lesser extent, higher product sales in the Medical and Surgical divisions. Revenues within Pharmaceuticals increased from specialty chemicals and Retail also experienced favorable sales growth. Partially offsetting these increases were revenue declines within Imaging, primarily due to the impact of voluntary product recalls and reduced volumes in Respiratory.

Operating income and operating margin in the quarter ended June 30, 2006 decreased $102 million and 4.4 percentage points, respectively, as compared to the quarter ended July 1, 2005. The margin drop through on increased revenue noted above was more than offset by unfavorable pricing and product mix as well as unfavorable manufacturing performance due to product recalls and an increased investment in quality and regulatory assurance. Operating income in the quarter ended June 30, 2006 includes a $10 million charge related to stock option expense.

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
	June 30, 2006			July 1, 2005
Revenue from product sales	$	1,477		$	1,345
Service revenue		319			334

Net revenue	$	1,796		$	1,679

Operating income	$	99		$	178
Operating margin		5.5	%		10.6	%

Net revenue for Engineered Products and Services increased 7.0% in the quarter ended June 30, 2006 over the quarter ended July 1, 2005, which included a 9.8% increase in product revenue and a 4.5% decrease in service revenue. The increase in net revenue was due to higher volumes in core steel products within Electrical and Metal Products as well as higher demand in industrial and commercial markets and increased project sales primarily at Flow Control and Fire & Building Products. These increases were offset by decreased revenue at Infrastructure Services. The quarter was also favorably impacted by $4 million due to foreign currency exchange rates.

Operating income decreased 44.4% in the quarter ended June 30, 2006 as compared to the quarter ended July 1, 2005. The decrease in operating income was primarily attributable to a $100 million charge related to the Voluntary Replacement Program for certain fire sprinkler heads. This decrease was partially offset by the operating income impact of increased revenues at both Electrical and Metal Products and Fire & Building Products. The current quarter also includes a $4 million charge for stock option expense.

Corporate

Corporate expense (income) was $139 million and ($187) million in the quarters ended June 30, 2006 and July 1, 2005, respectively. The current quarter includes $54 million of costs related to the Proposed Separation and $8 million of stock option expense. The same period in the prior year included the gain on the sale of the TGN business of $307 million and TGN operating losses of $14 million. In addition, corporate expenses in the quarter ended July 1, 2005 were impacted by higher costs related to Sarbanes-Oxley compliance effects and legacy matters.

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 three and nine months ended June 30, 2006 include incremental share-based compensation expense totaling

$38 million and $132 million, respectively. As such, basic and diluted earnings per share were impacted by $0.01 and $0.05 for the three and nine months ended June 30, 2006, respectively.

Interest Income and Expense

Interest income was $25 million in the quarter ended June 30, 2006 as compared to $24 million in the quarter ended July 1, 2005. Interest expense was $167 million in the quarter ended June 30, 2006 as compared to $198 million in the quarter ended July 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 July 1, 2005, the Company recorded losses from the retirement of debt of $179 million.

Income Taxes

Our effective income tax rate was 24.3% and 28.3% during the quarters ended June 30, 2006 and July 1, 2005, respectively. The effective rate for the prior period was unfavorably impacted largely as a result of the early retirement of debt for which no benefit existed.

Nine Months Ended June 30, 2006 Compared to Nine Months Ended July 1, 2005

Electronics

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

	For the Nine Months Ended
	June 30, 2006			July 1, 2005
Revenue from product sales	$	9,205		$	8,691
Service revenue		156			114

Net revenue	$	9,361		$	8,805

Operating income	$	1,326		$	1,421
Operating margin		14.2	%		16.1	%

Net revenue for Electronics increased $556 million in the nine months ended June 30, 2006 over the nine months ended July 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 premise wiring end markets. These increases were partially offset by unfavorable changes in foreign currency exchange rates of $200 million.

Operating income and operating margin for the nine months ended June 30, 2006 decreased $95 million and 1.9 percentage points, respectively, as compared to the same period in the prior year due primarily to increased material costs of approximately $200 million and unfavorable changes in foreign currency exchange rates ($32 million). Operating income for the nine months ended June 30, 2006 also includes a $32 million charge for stock option expense and net restructuring, impairment and divestiture charges of $10 million compared to net restructuring and other credits of $7 million in the nine months ended July 1, 2005. These decreases were 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 Nine Months Ended
	June 30, 2006			July 1, 2005
Revenue from product sales	$	3,979		$	3,972
Service revenue		4,612			4,637

Net revenue	$	8,591		$	8,609

Operating income	$	832		$	895
Operating margin		9.7	%		10.4	%

Net revenue for Fire and Security decreased $18 million in the nine months ended June 30, 2006 over the nine months ended July 1, 2005. The decrease in net revenue was primarily due to unfavorable changes in foreign exchange rates ($105 million) offset by increases at Worldwide Fire Services primarily due to growth in electrical and mechanical contracting in North America. Tyco Safety Products also increased operationally, although to a much lesser extent.

Operating income and operating margin decreased in the nine months ended June 30, 2006 over the same period in the prior year. The decrease was primarily due to lower margins in North America and Europe Worldwide Security and a $29 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 14.1% on a trailing twelve-month basis as of June 30, 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 Nine Months Ended
	June 30, 2006			July 1, 2005
Revenue from product sales	$	7,113		$	7,078
Service revenue		47			50

Net revenue	$	7,160		$	7,128

Operating income	$	1,694		$	1,948
Operating margin		23.7	%		27.3	%

Net revenue for Healthcare increased $32 million in the nine months ended June 30, 2006 over the nine months ended July 1, 2005. Revenue increased in Medical Devices and Supplies, largely driven by Europe in the International division related to increased volume of surgical products. Additionally, new product sales and international growth at Retail, as well as, 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 partially offset by unfavorable changes in foreign currency exchange rates ($113 million) and the impact of voluntary product recalls.

Operating income and operating margin in the nine months ended June 30, 2006 decreased $254 million and 3.6 percentage points, respectively, as compared to the nine months ended July 1,

2005. The increased volume in International was offset by unfavorable manufacturing performance, the impact of voluntary product recalls and increased compliance-related costs, increased raw material costs and continued weakness in Retail of $47 million. Operating income was adversely impacted by $35 million due to changes in foreign currency exchange rates, as well as a $32 million charge for stock option expense. Additionally, the nine months ended June 30, 2006 includes an incremental investment in research and development and sales and marketing as well as a $45 million gain on divestiture relating to the sale of a business within Medical Devices and Supplies. The nine months ended July 1, 2005 also 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 Nine Months Ended
	June 30, 2006			July 1, 2005
Revenue from product sales	$	4,096		$	3,806
Service revenue		992			993

Net revenue	$	5,088		$	4,799

Operating income	$	460		$	515
Operating margin		9.0	%		10.7	%

Net revenue for Engineered Products and Services increased 6.0% in the nine months ended June 30, 2006 over the nine months ended July 1, 2005. The increase in net revenue was primarily due to higher demand in industrial and commercial markets and increased project sales, primarily at Flow Control, Electrical and Metal Products and Fire & Building Products. These increases were partially offset by $54 million in unfavorable changes in foreign currency exchange rates.

Operating income decreased 10.7% for the nine months ended June 30, 2006 as compared to the nine months ended July 1, 2005. The decrease in operating income was primarily attributable to a $100 million charge related to the Voluntary Replacement Program for certain sprinkler heads and $14 million of stock option expense. Partially offsetting these items were was improved volume at Flow Control and Fire & Building Products as well as higher project margins at Infrastructure Services.

Corporate

Corporate expense was $345 million and $29 million in the nine months ended June 30, 2006 and July 1, 2005, respectively. The current period includes $85 million of costs related to the Proposed Separation as well as $25 million of stock option expense. The same period in the prior year included a $305 million gain on the sale of the TGN business and TGN operating losses of $54 million as well as $50 million for the SEC settlement.

Interest Income and Expense

Interest income was $95 million in the nine months ended June 30, 2006 as compared to $92 million in the nine months ended July 1, 2005. Interest expense was $545 million in the nine months ended June 30, 2006 as compared to $622 million in the nine months ended July 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 nine months ended July 1, 2005, the Company recorded losses from the retirement of debt of $908 million.

Income Taxes

Our effective income tax rate was 20.5% and 33.6% during the nine months ended June 30, 2006 and July 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, partially offset by a decrease in profitability in operations in jurisdictions with lower tax rates. In 2005, the effective rate was unfavorably impacted largely as a result of the early retirement of debt for which no benefit existed, partially offset by benefits realized related to the TGN divestiture and, to a lesser extent, by increased profitability in operations in jurisdictions with lower tax rates.

Cumulative effect of accounting change

Discontinued Operations and Divestitures

Discontinued Operations

its fair value less costs to sell. The sale of the A&E Products Group was consummated in the third quarter of 2006 for gross cash proceeds of $5 million. The Company recognized an additional pre-tax loss on sale of $3 million.

During the third quarter of 2006, the Company approved a plan to divest the PCG business, a component of the Electronics segment. At June 30, 2006, the PCG business met the held for sale and discontinued operations criteria and was included in discontinued operations in all periods presented. A definitive agreement to sell the business was entered into on August 3, 2006. We anticipate that this sale will be completed during this calendar year, and expect to record a gain on sale at that time.

During the nine months ended July 1, 2005, the Company divested eight businesses that were reported as discontinued operations and reported pre-tax losses on sales of $66 million.

Losses (gains) on divestitures

In November 2004, Tyco agreed to sell the TGN, its undersea fiber optic telecommunication network. The sale was consummated on June 30, 2005. As part of the sale transaction, Tyco received gross cash proceeds of $130 million, and the purchaser assumed certain liabilities. In connection with this sale, Tyco recorded a $305 million pre-tax gain which is reflected in losses (gains) on divestitures in the Consolidated Statements of Income for the nine months ended July 1, 2005. The Company has presented the operations of the TGN in continuing operations as the criteria for discontinued operations were not met.

Acquisitions

During the nine months ended July 1, 2005, the Company completed five acquisitions for an aggregate cost of $15 million.

On July 18, 2006, Tyco Healthcare entered into a definitive agreement to acquire Confluent Surgical, Inc. ("Confluent") for $245 million. Confluent is a leading developer and supplier of polymer-based technology used in sprayable surgical sealants and anti-adhesion products. The transaction is expected to close by the end of August. Tyco expects to incur a charge in its fourth quarter of 2006 to write-off in-process research and development.

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 nine months ended June 30, 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").

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 Nine Months Ended
	June 30, 2006			July 1, 2005			June 30, 2006			July 1, 2005
Cash flows from operating activities:
Operating income	$	1,329		$	1,856		$	3,967		$	4,750
Losses (gains) on divestitures		2			(294	)		(39	)		(281	)
Depreciation and amortization⁽¹⁾		514			518			1,539			1,561
Non-cash compensation expense		65			21			211			55
Deferred income taxes		28			30			79			102
Provision for losses on accounts receivable and inventory		35			61			127			187
Other, net		7			(3	)		28			7
Net change in working capital		—			(54	)		(1,550	)		(698	)
Interest income		25			24			95			92
Interest expense		(167	)		(198	)		(545	)		(622	)
Income tax expense		(289	)		(425	)		(719	)		(1,109	)

Net cash provided by operating activities	$	1,549		$	1,536		$	3,193		$	4,044

Other cash flow items:
Capital expenditures, net⁽²⁾	$	(383	)	$	(320	)	$	(1,090	)	$	(907	)
Decrease in the sale of accounts receivable		1			—			8			15
Acquisition of customer accounts (ADT dealer program)		(97	)		(92	)		(266	)		(227	)
Purchase accounting and holdback liabilities		(12	)		(6	)		(23	)		(29	)
Voluntary pension contributions		—			82			—			82

⁽¹⁾: The quarters ended June 30, 2006 and July 1, 2005 included depreciation expense of $352 million and $355 million, respectively, and amortization of intangible assets of $162 million and $163 million, respectively. The nine months ended June 30, 2006 and July 1, 2005 included depreciation expense of $1,051 million and $1,072 million, respectively, and amortization of intangible assets of $488 million and $489 million, respectively.
⁽²⁾: Included net proceeds received for the sale/disposition of property, plant and equipment of $11 million and $15 million for the quarters ended June 30, 2006 and July 1, 2005, respectively, as well as $28 million and $67 million for the nine months ended June 30, 2006 and July 1, 2005, respectively.

The net change in working capital was flat in the three months ended June 30, 2006. The change in working capital included a $222 million increase in accrued and other liabilities during the three months, which includes increased accrued warranty, primarily related to the Voluntary Replacement Program for certain sprinkler heads, and an increase in the accrued annual bonus compensation. This decrease was offset by a $209 million increase in inventories.

The net change in working capital was a cash decrease of $1,550 million in the nine months ended June 30, 2006. The components of this change are set forth in detail in the Consolidated Statements of Cash Flows. The change in working capital included a $659 million decrease in accrued and other liabilities during the nine months, primarily related to decreased accrued legal and audit fees and accrued income taxes payable, as well as a $721 million increase in inventories.

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)	$	1,326		$	832		$	1,694		$	460		$	(345	)	$	3,967
Losses (gains) on divestitures		4			2			(45	)		—			—			(39	)
Depreciation		340			425			200			77			9			1,051
Intangible assets amortization		52			387			47			2			—			488

Depreciation and amortization		392			812			247			79			9			1,539
Deferred income taxes		—			—			—			—			79			79
Provision for losses on accounts receivable and inventory		56			18			37			16			—			127
Net increase in working capital and other		(92	)		(198	)		(604	)		(116	)		(301	)		(1,311	)
Interest income		—			—			—			—			95			95
Interest expense		—			—			—			—			(545	)		(545	)
Income tax expense		—			—			—			—			(719	)		(719	)

Net cash provided by (used in) operating activities	$	1,686		$	1,466		$	1,329		$	439		$	(1,727	)	$	3,193

Other cash flow items:
Capital expenditures, net	$	(392	)	$	(313	)	$	(310	)	$	(71	)	$	(4	)	$	(1,090	)
Decrease in sale of accounts receivable		—			7			1			—			—			8
Acquisition of customer accounts (ADT dealer program)		—			(266	)		—			—			—			(266	)
Purchase accounting and holdback liabilities		(10	)		(5	)		(7	)		(1	)		—			(23	)

During the nine months ended June 30, 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. Additionally, during the first nine months of 2006, we utilized $1.0 billion in cash for scheduled repayments of public notes.

During the first nine months of 2006, we repurchased 71.0 million of our common shares for $1.9 billion, completing the $1.5 billion share repurchase program previously approved by the Board of Directors in 2005 and continuing under a new $2.0 billion share repurchase program announced in May 2006. We will continue to use excess cash to repurchase shares over the balance of the year.

During the nine months ended June 30, 2006, we purchased approximately 292,176 customer contracts for electronic security services through the ADT dealer program for cash of $266 million.

During the nine months ended June 30, 2006, we paid $97 million ($23 million reported in continuing operations and $74 million reported in discontinued operations) 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 June 30, 2006, holdback liabilities on our Consolidated Balance Sheets were $72 million, of which $8 million are included in accrued and other current liabilities and $64 million was included in other liabilities. At June 30, 2006, $45 million of acquisition liabilities remained on our Consolidated Balance Sheets, of which $16 million are included in accrued and other current liabilities and $29 million are included in other liabilities.

During the nine months ended June 30, 2006, we paid $155 million related to acquisitions of businesses, net of cash acquired, including a net $123 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.

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 amount of capital expenditures are expected to approximate depreciation expense in 2006 and are expected to remain consistent with the level of spending in 2005.

Income taxes paid, net of refunds, during the nine months ended June 30, 2006 was $790 million.

During the first nine months of 2006, we made additional cash outflows of approximately $450 million for the resolution of certain previously accrued legal matters including a patent dispute in the Healthcare business and a cash payment of $50 million in May 2006 to settle the previously disclosed SEC enforcement action.

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 could approximate $1.0 billion, largely for tax restructuring and debt refinancing.

Capitalization

Shareholders' equity was $34.4 billion, or $17.07 per share, at June 30, 2006, compared to $32.5 billion, or $16.10 per share, at September 30, 2005. Shareholders' equity increased $1.9 billion as net income for the nine months ended June 30, 2006 of $2.5 billion and the exchange of convertible debt due 2018 of $1.2 billion was partially offset by the repurchase of common shares by a subsidiary, as previously mentioned and the payment of dividends.

Total debt was $10.0 billion and total debt as a percentage of total capitalization (total debt and shareholders' equity) was 23% at June 30, 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 2.75% convertible debentures 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 $2.1 billion at June 30, 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 which was amended on June 28, 2006 to extend the maturity date from December 22, 2006 to December 21, 2007. Additionally, TIGSA holds a $500 million 3-year unsecured letter of credit facility expiring on June 15, 2007. At June 30, 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 June 30, 2006. On July 31, 2006, TIGSA borrowed $700 million under its $1.5 billion 3-year revolving bank credit facility expiring December 21, 2007. The entire proceeds of the borrowing were used by TIGSA to repay its 5.8% public notes due 2006 at their maturity on August 1, 2006. The Company may borrow under these facilities from time to time in the future to manage its overall short-term liquidity and other capital needs.

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 June 30, 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 $605 million related to the first nine months of 2006 versus $427 million for the first nine 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

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. While we may from time to time seek to

engage plaintiff's counsel in settlement discussions, 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.

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.

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 June 30, 2006, Tyco concluded that it was probable that it would incur remedial costs in the range of approximately $127 million to $406 million. As of June 30, 2006, Tyco concluded that the best estimate within this range is approximately $189 million, of which $32 million is included in accrued and other current liabilities and $157 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 $189 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.

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. While the timing and ultimate resolution of the remaining matters is uncertain, the Company anticipates that certain of these matters could be resolved over the next several quarters. Amounts related to these tax adjustments and other tax contingencies that management has assessed as probable and estimable have been recorded.

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.

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.

Backlog

At June 30, 2006, Tyco had a backlog of unfilled orders of $14.2 billion, compared to a backlog of $13.5 billion at September 30, 2005. Backlog by segment was as follows ($ in millions):

	June 30, 2006		September 30, 2005
Fire and Security	$	6,963	$	6,732
Engineered Products and Services		4,084		4,007
Electronics		2,813		2,496
Healthcare		328		272

	$	14,188	$	13,507

Within Fire and Security, backlog increased primarily as a result of strong bookings in North America and Europe. 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 June 30, 2006 and September 30, 2005 was $3.63 billion and $3.55 billion, 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 $75 million and $80 million at June 30, 2006 and September 30, 2005, respectively.

Guarantees

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.

Additionally, the Company 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 nine months ended June 30, 2006 include incremental share-based compensation expense totaling $38 million and $132 million, respectively. As such, basic and diluted earnings per share were impacted by $0.01 and $0.05 for the three and nine months ended June 30, 2006, respectively.

Recently Issued Accounting Pronouncement—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.

Forward-Looking Information

Certain statements in this report are "forward-looking statements" within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. All forward-looking statements involve risks and uncertainties. All statements contained herein that are not clearly historical in nature are forward-looking, and the words "anticipate," "believe," "expect," "estimate," "project" and similar expressions are generally intended to identify forward-looking statements. Any forward-looking statement contained herein, in press releases, written statements or other documents filed with the SEC, or in Tyco's communications and discussions with investors and analysts in the normal course of business through meetings, webcasts, phone calls and conference calls, regarding expectations with respect to 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.

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 June 30, 2006 we are receiving a weighted-average fixed rate of 6.3% and paying a weighted-average variable rate of 7.0% 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 provide reasonable assurance 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). Based on this evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that, as of June 30, 2006, our disclosure controls and procedures were effective.

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. 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. Additionally, in preparation of our previously announced separation into three separate public companies, we have begun the process of designing the necessary controls to allow the two new entities to properly function as independent public companies. As we execute the steps necessary to effectuate the separation, we will begin migrating certain processes, applications and functions previously performed by us to these two entities. 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.

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. 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 without prejudice to its later renewal. On June 12, 2006, the Court entered an order certifying a class "consisting of all persons and entities who purchased or otherwise acquired Tyco securities between December 13, 1999 and June 7, 2002, and who were damaged thereby, excluding defendants, all of the officers, directors and partners thereof, members of their immediate families and their legal representatives, heirs, successors or assigns, and any entity in which any of the foregoing have or had a controlling interest." On June 26, 2006, Tyco filed a petition for leave to appeal the class certification order to the United States Court of Appeals for the First Circuit. That petition is still pending. On July 6, 2006, the lead plaintiffs filed in the United States District Court for the District of New Hampshire a motion for a permanent injunction against prosecution of the class action styled Brazen v. Tyco International Ltd. that was certified by the Circuit Court for Cook County, Illinois. That motion is still pending.

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. That appeal has been briefed and argued and is still pending.

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 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. That appeal has been briefed and argued and is still pending.

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. 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. On July 5, 2006, plaintiffs filed a partial motion for summary judgment. That motion is not fully briefed.

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 July 17, 2006, the Court entered an order granting Tyco's motion to dismiss on the grounds that all of plaintiff's claims were preempted by federal law. The motion to dismiss was granted without prejudice to plaintiff's right to file another action in state court asserting claims that are not preempted by federal law.

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 the United States District Court for the District of New Hampshire.

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.

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. The SEC notified the Company on June 7, 2006 that it was dismissing Tyco from the SEC's investigation of the United Nations Oil for Food Program.

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 a New Jersey facility sold by Tyco in 2000. The subpoena seeks information for the period from January 1987 to December 2000. We have provided information in response to the subpoena and will continue to 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 that may require us to pay damage awards. Tyco has assessed the status of these matters and has recorded liabilities related to certain of these matters where appropriate.

patent infringement action filed on June 19, 2000 in the United States District Court for the Central District of California.

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. In 2005, Tyco 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. 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.

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 scheduled the new trial on the damages for October 10, 2006.

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.

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.

The Company has discussed this matter in detail with the Environmental Protection Agency and is seeking a negotiated resolution.

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 June 30, 2006 there were approximately 15,000 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 filed a Motion to Dismiss rather than filing an answer to the First Amended Complaint on May 18, 2006. The Court has not ruled on this motion.

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 Presiding Judge of Maricopa County Superior Court on July 11, 2006 consolidated all of the pending lawsuits related to this dispute on the Court's complex litigation docket.

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.

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 could approximate $1.0 billion. However, actual costs could exceed that estimate and could have a material adverse effect on our results of operations or cash flows.

We may be unable to complete the transaction.

There is no guarantee that the Proposed Separation will be finalized. Completion of the Proposed Separation 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 our management team as a result of the Proposed Separation could distract management's attention from operating the business.

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 management and operational resources, as well as the use of several cross-functional project teams. Our business or results of operations may be adversely affected 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 be requested to issue credit ratings for each of the three independent public companies formed in the Proposed Separation. Debt currently outstanding will be allocated or assigned to each of the three companies. There currently is 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 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, 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 United States 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.

The IRS continues 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 second quarter of 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.

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.

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 applicable laws, we believe that it is probable that we would incur remedial costs (including asset retirement obligations) of approximately $263 million, of which $32 million is included in accrued expenses and other current liabilities and $231 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.

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 14.1% and 14.8% on a trailing 12-month basis as of June 30, 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.

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.

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. We expect various U.S. Treasury Department studies to be released and 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 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
4/1/06–4/28/06	14,508,454	$	26.97	14,493,200	—
4/29/06–6/2/06	8,027,111		27.15	8,001,000	—
6/3/06–6/30/06	18,518,910		26.89	18,518,910	—

The transactions described in the table above represent the repurchase of common shares on the NYSE as part of the $1.5 billion and $2.0 billion share repurchase program approved by the Board of Directors in July 2005 and May 2006, respectively. The average price paid per share is calculated by dividing the total cash paid for the shares by the total number of shares repurchased. 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 40,000 shares were acquired in these vesting-related transactions outside of the share repurchase program during the quarter ended June 30, 2006.

Item 3. Defaults Upon Senior Securities

None.

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

None.

Item 5. Other Information

None.

Item 6. Exhibits

Exhibit Number		Exhibit
10.1		Amendment No. 3 dated as of June 28, 2006 among Tyco International Group S.A., Tyco International Ltd., each required lender from time to time party thereto, and Bank of America, N.A., as Paying Agent, to the Three-Year Credit Agreement dated as of December 22, 2003 among Tyco International Group S.A., Tyco International Ltd., the banks named therein, and Bank of America., N.A. and Citigroup North America, as Co-Administrative Agents (filed herewith).
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).

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: August 8, 2006

EX-10.1 2 a2172168zex-10_1.htm EXHIBIT 10.1

Exhibit 10.1

AMENDMENT NO. 3 TO THREE-YEAR CREDIT AGREEMENT

(Extension)

Amendment No. 3 to Three-Year Credit Agreement, dated as of June 28, 2006 (this “Amendment”), among TYCO INTERNATIONAL GROUP S.A., a Luxembourg company (the “Borrower”), TYCO INTERNATIONAL LTD., a Bermuda company (the “Parent”) (and together with the Borrower, the “Principal Obligors”), each Lender party to the Agreement (as defined below), and BANK OF AMERICA, N.A. as Paying Agent (in such capacity, the “Paying Agent”).

WITNESSETH

WHEREAS, the Borrower, the Parent, the Lenders and the Paying Agent have entered into that certain U.S. $1,500,000,000 Three-Year Credit Agreement, dated as of December 22, 2003 (as amended by Amendment dated as of December 16, 2004 and Amendment No. 2 dated as of April 15, 2005, the “Agreement”);

WHEREAS, the Borrower, the Parent, the Paying Agent and the Lenders desire to further amend the Agreement in certain respects to, among other things, extend by one year the maturity date of the Agreement;

NOW THEREFORE, in consideration of the premises and the mutual agreements, representations and warranties set forth herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows:

SECTION 1. Definitions and References. Capitalized terms not otherwise defined herein shall have the meanings attributed thereto in the Agreement.

SECTION 2. Amendments.

(a) Section 1.01 of the Agreement is hereby amended by inserting the following new defined term immediately following the defined term “Amendment Effective Date”:

“Amendment No. 3 Fee Letter” means the letter dated as of June 12, 2006 among the Borrower, the Arrangers and the Co-Administrative Agents.”

(b) Section 1.01 of the Agreement is hereby amended by deleting the definition of “Applicable Margin”, and inserting the following new definition in its place:

““Applicable Margin” means, with respect to any Eurodollar Rate Loan, either (i) for any Rating Level Period during which less than 50% of the Aggregate Commitments are being utilized, the rate per annum set forth in Schedule 1 opposite the reference to such Rating Level Period under the heading “Applicable Margin” and under the sub-heading “Less than 50% of Aggregate Commitments Utilized”, or (ii) for any Rating Level Period during which 50% or more of the Aggregate Commitments are being utilized, the rate per annum

set forth in Schedule 1 opposite the reference to such Rating Level Period under the heading “Applicable Margin” and under the sub-heading “50% or More of Aggregate Commitments Utilized”; each change in the Applicable Margin resulting from a Rating Level Change or an Aggregate Commitment utilization change to be effective on the date of such Rating Level Change or utilization change, as the case may be.”

(c) Section 1.01 of the Agreement is hereby amended by deleting the definition of “Fee Letters”, and inserting the following new definition in its place:

““Fee Letters” means, collectively, (a) the letter dated as of November 3, 2003 between the Borrower, the Arrangers and the Co-Administrative Agents, (b) the letter dated as of December 9, 2003 between the Borrower and the Paying Agent and (c) the Amendment No. 3 Fee Letter.”

(d) Section 1.01 of the Agreement is hereby amended by deleting the definition of “Rating Level Period”, and inserting the following new definition in its place:

““Rating Level Period” means a Rating Level 1 Period, a Rating Level 2 Period, a Rating Level 3 Period or a Rating Level 4 Period; provided that:

(i) “Rating Level 1 Period” means a period during which the Moody’s Rating is at or above A3 or the S&P Rating is at or above A-;

(ii) “Rating Level 2 Period” means a period that is not a Rating Level 1 Period, during which the Moody’s Rating is at or above Baa1 or the S&P Rating is at or above BBB+;

(iii) “Rating Level 3 Period” means a period that is not a Rating Level 1 Period or a Rating Level 2 Period, during which the Moody’s Rating is at or above Baa2 or the S&P Rating is at or above BBB;

and

(iv) “Rating Level 4 Period” means a period that is not a Rating Level 1 Period, a Rating Level 2 Period or a Rating Level 3 Period;

and provided, further, that if the Moody’s Rating and the S&P Rating differ by one Rating Level, the higher Rating Level will apply for the Rating Level Period and if the Moody’s Rating and the S&P Rating differ by more than one Rating Level, then the applicable Rating Level Period shall be one Rating Level higher than the Rating Level resulting from the application of the lower of such ratings (for which purpose Rating Level 1 is the highest and Rating Level 3 is the lowest); and provided, further, that any period during which there is no Moody’s Rating and there is no S&P Rating shall be a Rating Level 4 Period.”

2 (e) Section 1.01 of the Agreement is hereby amended by deleting the definition of “Termination Date”, and inserting the following new definition in its place:

““Termination Date” means December 21, 2007 (or if such day is not a Business Day, the next preceding Business Day).”

(f) Schedule 1 of the Agreement is hereby amended by deleting such schedule in its entirety and inserting in its place the Schedule 1 attached as Exhibit A hereto.

(g) Schedule 2.01 of the Agreement is hereby amended by deleting such schedule in its entirety and inserting in its place the Schedule 2.01 attached as Exhibit B hereto.

SECTION 3. Representations True; No Event of Default. The Principal Obligors represent and warrant on and as of the date hereof and the Effective Date that:

(a) The representations and warranties contained in Article V of the Agreement are correct on and as of each such date as though made on and as of each such date, except that (i) references therein to “2004” shall instead refer to “2005”, and (ii) references therein to “this Agreement”, “hereunder”, “herein” or words of like import, shall mean and be a reference to the Agreement as amended by this Amendment.

(b) No event has occurred and is continuing, or would result from the execution and delivery of this Amendment, which constitutes an Event of Default or which, with the giving of notice and/or the passage of time, would constitute an Event of Default.

(c) This Amendment has been duly authorized, executed and delivered on behalf of each of the Principal Obligors.

(d) Each of this Amendment and the Agreement, as amended hereby, constitutes a legal, valid and binding obligation of each of the Principal Obligors, enforceable against each of the Principal Obligors in accordance with its terms, except as the enforceability thereof may be limited by (i) applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer or similar laws of general application relating to or affecting the rights and remedies of creditors generally or (ii) general principles of equity.

SECTION 4. Ratification. Except as amended hereby, the Agreement and all other documents executed in connection therewith (including without limitation, the Notes) shall remain in full force and effect. The Agreement, as amended hereby, and all rights and powers created thereby or thereunder and under such other documents are in all respects ratified and confirmed.

3

SECTION 5. Conditions Precedent. This Amendment will become effective on and as of the first date (the “Effective Date”) on which the following conditions shall have been satisfied (or waived in accordance with Section 10.01 of the Agreement):

(a) The Paying Agent’s receipt of the following, each of which shall be originals, electronic copies or facsimiles (followed promptly by originals) unless otherwise specified, each properly executed by a Responsible Officer of the signing Principal Obligor, each dated the Effective Date and each in form and substance satisfactory to the Paying Agent and its legal counsel:

(i) executed counterparts of this Amendment sufficient in number for distribution to the Paying Agent, each Lender and the Principal Obligors;

(ii) a certificate of the Secretary or Assistant Secretary of each Principal Obligor certifying (A) the charter, by-laws or other equivalent organizational documents of each Principal Obligor, (B) resolutions of the Board of Directors of each Principal Obligor authorizing the making and performance by it of this Amendment, and (C) the names and true signatures of the officers of each Principal Obligor authorized to sign this Amendment;

(iii) a favorable opinion of each of (i) the general counsel of the Parent, (ii) Allen & Overy, special Luxembourg counsel of the Borrower, (iii) Appleby Spurling Hunter, special Bermudian counsel of the Parent, and (iv) Chadbourne & Parke LLP, special New York counsel of the Paying Agent, each in form and substance acceptable to the Paying Agent;

(iv) evidence of the consent of CT Corporation System in New York, New York to extend the appointment and designation provided for by Section 10.15(c) of the Agreement to cover the Agreement as amended by this Amendment; and

(v) such other assurances, certificates, documents, consents or opinions as the Paying Agent, the L/C Issuers or the Required Lenders reasonably may require.

(b) Any fees required to be paid on or before the Effective Date shall have been paid.

(c) Unless waived by the Co-Administrative Agents and the Arrangers, the Borrower shall have paid all reasonable Attorney Costs of the Co-Administrative Agents and the Arrangers to the extent invoiced prior to or on the Effective Date, plus such additional amounts of reasonable Attorney Costs as shall constitute its reasonable estimate of reasonable Attorney Costs incurred or to be incurred by it through the amendment closing proceedings (provided that such estimate shall not thereafter preclude a final settling of accounts between the Borrower and the Paying Agent).

4 (d) That certain Master Assignment and Assumption Agreement dated as of the date hereof (the “Master Assignment”) by and among the Borrower, the Parent, the Paying Agent, each “Non-Extending Bank” party thereto, and each “Increasing Bank” party thereto, reflecting the reallocation of the Commitments, shall have become effective in accordance with the terms thereof.

(e) The Effective Date shall have occurred on or prior to July 14, 2006.

The Paying Agent shall promptly notify the Borrower and the Lenders of the Effective Date, and such notice shall be conclusive and binding.

SECTION 6. Existing Agreement. Until the occurrence of the Effective Date, the Agreement, without giving effect to this Amendment, shall continue in full force and effect in accordance with the provisions thereof and the rights and obligations of the parties thereto shall not be affected hereby, all Commitments and Loans thereunder shall continue as set forth therein and all interest accruing and other amounts payable under the Agreement shall continue to accrue and be payable as provided for therein.

SECTION 7. Miscellaneous.

(a) The Agreement and this Amendment shall be read, taken and construed as one and the same instrument from and after the Effective Date.

(b) This Amendment shall be governed by, and construed in accordance with, the laws of the State of New York.

(c) Any references in the Agreement to “this Agreement”, “hereunder”, “herein” or words of like import, and each reference in any other document executed in connection with the Agreement (including without limitation, the Notes), to “the Agreement”, “thereunder”, “therein” or words of like import, shall, from and after the Effective Date, mean and be a reference to the Agreement as amended hereby.

(d) This Amendment may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed an original and all of which taken together shall constitute one and the same agreement.

[THE BALANCE OF THIS PAGE IS INTENTIONALLY LEFT BLANK]

IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed as of the date first above written.

	TYCO INTERNATIONAL GROUP S.A.
	By:	/s/ Kevin O'Kelly-Lynch
	Name:	Kevin O'Kelly-Lynch
	Title:	Managing Director


	TYCO INTERNATIONAL LTD.
	By:	/s/ Christopher J. Coughlin
	Name:	Christopher J. Coughlin
	Title:	Executive Vice President and Chief Financial Officer

	BANK OF AMERICA, N.A., as Paying Agent
	By:	/s/ John Pocalyko
	Name:	John Pocalyko
	Title:	Senior Vice President


	BANK OF AMERICA, N.A., as a Lender
	By:	/s/ John Pocalyko
	Name:	John Pocalyko
	Title:	Senior Vice President


	BANK OF AMERICA, N.A., as L/C Issuer
	By:	/s/ John Pocalyko
	Name:	John Pocalyko
	Title:	Senior Vice President

S-2

	CITICORP NORTH AMERICA, INC., as a Lender
	By:	/s/ Kevin A. Ege
	Name:	Kevin A. Ege
	Title:	Vice President

S-3

	ABN AMRO BANK N.V.
	By:	/s/ David Carrington
	Name:	David Carrington
	Title:	Director

	By:	/s/ Luc Perrot
	Name:	Luc Perrot
	Title:	Vice President

S-4

	AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED
	By:	/s/ R. Scott McInnis
	Name:	R. Scott McInnis
	Title:	General Manager, Americas

S-5

	BANCO BILBAO VIZCAYA ARGENTARIA S.A.
	By:	/s/ Jay Levit
	Name:	Jay Levit
	Title:	Vice President, Global Corporate Banking

	By:	/s/ John Martini
	Name:	John Martini
	Title:	Vice President, Corporate Banking

S-6

	THE BANK OF NOVA SCOTIA
	By:	/s/ Dana Maloney
	Name:	Dana Maloney
	Title:	Managing Director

S-7

	BARCLAYS CAPITAL PLC
	By:	/s/ Alison McGuigan
	Name:	Alison McGuigan
	Title:	Associate Director

S-8

	BAYERISCHE HYPO-UND VEREINSBANK AG, New York Branch
	By:	/s/ Marianne Weinzinger
	Name:	Marianne Weinzinger
	Title:	Director

	By:	/s/ Richard Cordover
	Name:	Richard Cordover
	Title:	Director

S-9

	BAYERISCHE LANDESBANK NEW YORK BRANCH
	By:	/s/ Michael Jakob
	Name:	Michael Jakob
	Title:	First Vice President

	By:	/s/ Norman McClave
	Name:	Norman McClave
	Title:	First Vice President

S-10

	BNP PARIBAS
	By:	/s/ Rick Pace
	Name:	Rick Pace
	Title:	Managing Director

	By:	/s/ Angela Bentley-Arnold
	Name:	Angela Bentley-Arnold
	Title:	Director

S-11

	CREDIT SUISSE, CAYMAN ISLANDS BRANCH
	By:	/s/ Jay Cahill
	Name:	Jay Cahill
	Title:	Director

	By:	/s/ James Neira
	Name:	James Neira
	Title:	Associate

S-12

	DEUTSCHE BANK AG NEW YORK BRANCH
	By:	/s/ Frederick W. Laird
	Name:	Frederick W. Laird
	Title:	Managing Director

	By:	/s/ Ming K. Chu
	Name:	Ming K. Chu
	Title:	Vice President

S-13

	WILLIAM STREET CREDIT CORPORATION
	By:	/s/ Mark Walton
	Name:	Mark Walton
	Title:	Assistant Vice President

S-14

	THE GOVERNOR AND COMPANY OF THE BANK OF IRELAND
	By:	/s/ Emer Dalton
	Name:	Emer Dalton
	Title:	Manager

	By:	/s/ Niall Casement
	Name:	Niall Casement
	Title:	Associate

S-15

	ING BELGIUM NV/SA
	By:	/s/ Yves Adler
	Name:	Yves Adler
	Title:	Director Adjoint

	By:	/s/ Jacques Mamere
	Name:	Jacques Mamere
	Title:	Fondé de pouvoir

S-16

	JPMORGAN CHASE BANK, N.A.
	By:	/s/ Robert T. Sacks
	Name:	Robert T. Sacks
	Title:	Managing Director

S-17

	LEHMAN COMMERCIAL PAPER INC.
	By:	/s/ Janine M. Shugan
	Name:	Janine M. Shugan
	Title:	Authorized Signatory

S-18

	MANUFACTURERS AND TRADERS TRUST COMPANY
	By:	/s/ Tracey E. Sawyer Calhoun
	Name:	Tracey E. Sawyer Calhoun
	Title:	Vice President

S-19

	MELLON BANK, N.A.
	By:	/s/ Daniel J. Lenckos
	Name:	Daniel J. Lenckos
	Title:	First Vice President

S-20

	MERRILL LYNCH BANK USA
	By:	/s/ David Millett
	Name:	David Millett
	Title:	Vice President

S-21

	MIZUHO CORPORATE BANK, LTD.
	By:	/s/ Robert Gallagher
	Name:	Robert Gallagher
	Title:	Senior Vice President

S-22

	MORGAN STANLEY BANK
	By:	/s/ Daniel Twenge
	Name:	Daniel Twenge
	Title:	Authorized Signatory

S-23

	THE NORTHERN TRUST COMPANY
	By:	/s/ Alex Nikolon
	Name:	Alex Nikolon
	Title:	Second Vice President

S-24

	THE ROYAL BANK OF SCOTLAND PLC
	By:	/s/ Angela Reilly
	Name:	Angela Reilly
	Title:	Senior Vice President

S-25

	SAN PAOLO IMI S.p.A.
	By:	/s/ Carlo Persico
	Name:	Carlo Persico
	Title:	CEO for the Americas

	By:	/s/ Robert Wurster
	Name:	Robert Wurster
	Title:	Senior Vice President

S-26

	SOCIETE GENERALE
	By:	/s/ Ambrish Thanawala
	Name:	Ambrish Thanawala
	Title:	Managing Director

S-27

	SUMITOMO MITSUI BANKING CORPORATION
	By:	/s/ David A. Buck
	Name:	David A. Buck
	Title:	Senior Vice President

S-28

	UBS LOAN FINANCE LLC
	By:	/s/ Richard L. Tavrow
	Name:	Richard L. Tavrow
	Title:	Director, Banking Products Services, US

	By:	/s/ Irja R. Otsa
	Name:	Irja R. Otsa
	Title:	Associate Director, Banking Products Services, US

S-29

	WESTPAC BANKING CORPORATION
	By:	/s/ Robert F. Bosse
	Name:	Robert F. Bosse
	Title:	Vice President

S-30

EX-31.1 3 a2172168zex-31_1.htm EXHIBIT 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: August 8, 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 4 a2172168zex-31_2.htm EXHIBIT 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.

3.

4.

(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.

(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: August 8, 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 5 a2172168zex-32_1.htm EXHIBIT 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 June 30, 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 August 8, 2006
/s/ CHRISTOPHER J. COUGHLIN Christopher J. Coughlin Executive Vice President and Chief Financial Officer August 8, 2006

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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
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