(FORTUNE Magazine) – Most folks thought Ed Breen had taken leave of his senses in July 2002 when he gave up the presidency of Motorola--a perch that was likely to lead to the CEO job--to run scandal-plagued conglomerate Tyco. While the turnaround is still a work in progress, since Breen joined, Tyco's stock is up fourfold, cash flow has quadrupled to an expected $4 billion this year, and all three rating agencies recently upgraded Tyco's debt to investment grade. Breen, 48, sat down with FORTUNE's Adam Lashinsky to talk about getting counsel from Jack Welch, the Tyco turnaround, and ex-CEO Dennis Kozlowski's art collection.

Since you joined Tyco in 2002, you've fired 290 of Tyco's 300 senior managers and the entire board. Why?

I came to a quick decision, and it was probably unfair to a fair amount of people--I'm the first to admit this. But there was a lot of behavior in that corporate office that wasn't acceptable, and it probably was deeper than a few people who were on trial. So my attitude was, I've got to rebuild it anyway--why not just rebuild it and get a world-class team?

Scandals aside, what was wrong with the business?

Tyco generated only $780 million in free cash flow the year before I arrived. The parent gave cash away free to the subsidiary companies. And all of a sudden you have ADT buying $1.4 billion in accounts in fiscal '02 to grow the company rather than trying to grow the company internally. It was like a free drug. We went from $780 million in free cash flow in fiscal '02 to $3.2 billion last year, and we'll do $4 billion this year [ending September 2004].

So how'd you do it?

We put a very intense operating focus into the company. Everyone was thinking acquisitions when they came to work Monday morning. And we said, "No acquisitions." We launched a Six Sigma global program throughout the company, which is why I brought in Naren Gursahaney from GE, who reports directly to me. Then we set up a global-sourcing program. We were literally negotiating phone bills in each business. We formed 80 teams to negotiate at the parent level. Those first two programs will save $1 billion in the next three years on Six Sigma and $1 billion on strategic sourcing in three years. We will collapse the real estate footprint, which is the third prong. We had 3,500 real estate locations around the world. We're rapidly bringing that down. In Singapore we had eight facilities within two miles of each other. It was a waste. I've joked many times that Jack Welch did not run Tyco before I got there. There's some low-hanging fruit around here.

How's the asset-sales program going?

We're in the middle of that. We've said we're putting up for sale a little over 50 businesses that represent $2.1 billion, or 5% of our revenues. We'll have the bulk of that done by the end of the year. We'll get about $400 million in proceeds from those businesses. It'll also improve our margins.

Whom have you turned to for help?

I didn't go to many people. I was in such a different situation at the beginning that it was somewhat unique. I talked to Jack Welch a few times. I talked to my friend Teddy Forstmann and John Malone a few times. And I talked to Frank Drendel, who runs CommScope Cable, many times.

How much of a distraction are the ongoing trials of ex-CEO Dennis Kozlowski and ex-CFO Mark Swartz?

It's not a water-cooler conversation. Nobody at the parent knew them. What's a shame is that it doesn't get that stigma out of the way. Who would have thought that the trials of Kozlowski and Swartz would happen again? Out of all outcomes, from an employee perspective, that was the worst.

By the way, do you still have any of Kozlowski's legendary art collection?

We haven't sold the apartment yet. So, yes.