10-Q 1 tyc-20130628x10q.htm 10-Q TYC-2013.06.28-10Q
 

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 28, 2013
or
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
001-13836
(Commission File Number)
___________________________________________________________
TYCO INTERNATIONAL LTD.
(Exact name of Registrant as specified in its charter)
Switzerland
(Jurisdiction of Incorporation)
 
98-0390500
(I.R.S. Employer Identification Number)
Victor von Bruns-Strasse 21
CH-8212 Neuhausen am Rheinfall, Switzerland
(Address of registrant's principal executive office)
41-52-633-02-44
(Registrant's telephone number)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes ý    No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes ý    No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of "large accelerated filer," "accelerated filer," and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer ý
 
Accelerated filer o
 
Non-accelerated filer o
 (Do not check if a smaller
reporting company)
 
Smaller reporting company o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes o    No ý
The number of common shares outstanding as of July 17, 2013 was 462,293,691.
 


TYCO INTERNATIONAL LTD.
INDEX TO FORM 10-Q

 
 
 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


PART I. FINANCIAL INFORMATION
Item 1.    Financial Statements
     TYCO INTERNATIONAL LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(in millions, except per share data)
 
For the Quarters Ended
 
For the Nine Months Ended
 
June 28,
2013
 
June 29,
2012
 
June 28,
2013
 
June 29,
2012
Revenue from product sales
$
1,508

 
$
1,512

 
$
4,388

 
$
4,288

Service revenue
1,170

 
1,143

 
3,498

 
3,387

Net revenue
2,678

 
2,655

 
7,886

 
7,675

Cost of product sales
1,023

 
1,024

 
3,024

 
2,926

Cost of services
672

 
661

 
2,012

 
1,972

Selling, general and administrative expenses
737

 
829

 
2,209

 
2,166

Separation costs (see Note 2)
4

 
6

 
9

 
10

Restructuring and asset impairment charges, net (see Note 4)
53

 
17

 
85

 
69

Operating income
189

 
118

 
547

 
532

Interest income
6

 
5

 
14

 
14

Interest expense
(26
)
 
(59
)
 
(75
)
 
(176
)
Other (expense) income, net
(1
)
 
1

 
(30
)
 
(1
)
Income from continuing operations before income taxes
168

 
65

 
456

 
369

Income tax (expense) benefit
(30
)
 
6

 
(73
)
 
(54
)
Equity loss in earnings of unconsolidated subsidiaries
(6
)
 
(7
)
 
(18
)
 
(19
)
Income from continuing operations
132

 
64

 
365

 
296

Income from discontinued operations, net of income taxes
3

 
181

 
5

 
594

Net income
135

 
245

 
370

 
890

Less: noncontrolling interest in subsidiaries net loss
—

 
(1
)
 
—

 
(1
)
Net income attributable to Tyco common shareholders
$
135

 
$
246

 
$
370

 
$
891

Amounts attributable to Tyco common shareholders:
 
 
 
 
 
 
 
Income from continuing operations
$
132

 
$
65

 
$
365

 
$
297

Income from discontinued operations
3

 
181

 
5

 
594

Net income attributable to Tyco common shareholders
$
135

 
$
246

 
$
370

 
$
891

Basic earnings per share attributable to Tyco common shareholders:
 
 
 
 
 
 
 
Income from continuing operations
$
0.29

 
$
0.14

 
$
0.79

 
$
0.64

Income from discontinued operations
—

 
0.39

 
0.01

 
1.29

Net income attributable to Tyco common shareholders
$
0.29

 
$
0.53

 
$
0.80

 
$
1.93

Diluted earnings per share attributable to Tyco common shareholders:
 
 
 
 
 
 
 
Income from continuing operations
$
0.28

 
$
0.14

 
$
0.77

 
$
0.63

Income from discontinued operations
—

 
0.38

 
0.01

 
1.27

Net income attributable to Tyco common shareholders
$
0.28

 
$
0.52

 
$
0.78

 
$
1.90

Weighted average number of shares outstanding:
 
 
 
 
 
 
 
Basic
463

 
463

 
465

 
463

Diluted
471

 
470

 
473

 
469

   See Notes to Unaudited Consolidated Financial Statements.

1

TYCO INTERNATIONAL LTD.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED)
(in millions)
 
For the Quarters Ended
 
For the Nine Months Ended
 
June 28,
2013
 
June 29,
2012
 
June 28,
2013
 
June 29,
2012
Net income
$
135

 
$
245

 
$
370

 
$
890

Other comprehensive income (loss), net of tax
 
 
 
 
 
 
 
Foreign currency translation
(134
)
 
(285
)
 
(225
)
 
(166
)
Defined benefit and post retirement plans
5

 
4

 
14

 
11

Unrealized (loss) gain on marketable securities and derivative instruments
(1
)
 
(1
)
 
—

 
1

Total other comprehensive loss, net of tax
(130
)
 
(282
)
 
(211
)
 
(154
)
Comprehensive income (loss)
5

 
(37
)
 
159

 
736

Less: comprehensive loss attributable to noncontrolling interests
—

 
(1
)
 
—

 
(1
)
Comprehensive income (loss) attributable to Tyco common shareholders
$
5

 
$
(36
)
 
$
159

 
$
737

   See Notes to Unaudited Consolidated Financial Statements.

2

TYCO INTERNATIONAL LTD.
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(in millions, except per share data)
 
June 28,
2013
 
September 28,
2012
Assets
 
 
 
Current Assets:
 
 
 
Cash and cash equivalents
$
455

 
$
844

Accounts receivable, less allowance for doubtful accounts of $76 and $62, respectively
1,678

 
1,696

Inventories
685

 
634

Prepaid expenses and other current assets
854

 
884

Deferred income taxes
295

 
295

Total current assets
3,967

 
4,353

Property, plant and equipment, net
1,640

 
1,670

Goodwill
4,322

 
4,367

Intangible assets, net
716

 
771

Other assets
1,225

 
1,204

Total Assets
$
11,870

 
$
12,365

Liabilities and Equity
 
 
 
Current Liabilities:
 
 
 
Loans payable and current maturities of long-term debt
$
19

 
$
10

Accounts payable
831

 
897

Accrued and other current liabilities
1,873

 
1,788

Deferred revenue
417

 
402

Total current liabilities
3,140

 
3,097

Long-term debt
1,462

 
1,481

Deferred revenue
396

 
424

Other liabilities
2,138

 
2,341

Total Liabilities
7,136

 
7,343

Commitments and Contingencies (see Note 11)


 

Redeemable noncontrolling interest
12

 
12

Tyco Shareholders' Equity:
 
 
 
Common shares, CHF 0.50 and CHF 6.70 par value as of June 28, 2013 and September 28, 2012, respectively, 825,222,070 shares authorized, 486,363,050 shares issued as of June 28, 2013 and September 28, 2012
208

 
2,792

Common shares held in treasury, 24,379,827 and 24,174,397 shares as of June 28, 2013 and September 28, 2012, respectively
(970
)
 
(1,094
)
Contributed surplus
3,777

 
1,763

Accumulated earnings
2,869

 
2,499

Accumulated other comprehensive loss
(1,177
)
 
(966
)
Total Tyco Shareholders' Equity
4,707

 
4,994

Nonredeemable noncontrolling interest
15

 
16

Total Equity
4,722

 
5,010

Total Liabilities, Redeemable Noncontrolling Interest and Equity
$
11,870

 
$
12,365

   See Notes to Unaudited Consolidated Financial Statements.

3

TYCO INTERNATIONAL LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(in millions)
 
For the Nine Months Ended
 
June 28,
2013
 
June 29,
2012
Cash Flows From Operating Activities:
 
 
 
Net income attributable to Tyco common shareholders
$
370

 
$
891

Noncontrolling interest in subsidiaries net loss
—

 
(1
)
Income from discontinued operations, net of income taxes
(5
)
 
(594
)
Income from continuing operations
365

 
296

Adjustments to reconcile net cash provided by operating activities:
 
 
 
Depreciation and amortization
318

 
313

Non-cash compensation expense
47

 
65

Deferred income taxes
(52
)
 
(60
)
Provision for losses on accounts receivable and inventory
54

 
38

Loss on divestitures
10

 
12

Other non-cash items
104

 
85

Changes in assets and liabilities, net of the effects of acquisitions and divestitures:
 
 
 
Accounts receivable, net
(44
)
 
(66
)
Contracts in progress
(13
)
 
(54
)
Inventories
(74
)
 
(74
)
Prepaid expenses and other current assets
69

 
(137
)
Accounts payable
(56
)
 
23

Accrued and other liabilities
(220
)
 
(49
)
Deferred Revenue
1

 
23

Other
(37
)
 
61

Net cash provided by operating activities
472

 
476

Net cash provided by discontinued operating activities
5

 
1,354

Cash Flows From Investing Activities:
 
 
 
Capital expenditures
(284
)
 
(296
)
Proceeds from disposal of assets
4

 
4

Acquisition of businesses, net of cash acquired
(75
)
 
(217
)
Acquisition of dealer generated customer accounts and bulk account purchases
(17
)
 
(18
)
Sales and maturities of investments
103

 
115

Purchases of investments
(182
)
 
(70
)
Other
6

 
16

Net cash used in investing activities
(445
)
 
(466
)
Net cash used in discontinued investing activities
—

 
(893
)
Cash Flows From Financing Activities:
 
 
 
Proceeds from issuance of short-term debt
380

 
1,224

Repayment of short term debt
(391
)
 
(1,225
)
Proceeds from exercise of share options
125

 
140

Dividends paid
(214
)
 
(346
)
Repurchase of common shares by treasury
(300
)
 
(500
)
Transfer from discontinued operations
35

 
422

Other
(35
)
 
(22
)
Net cash used in financing activities
(400
)
 
(307
)
Net cash used in discontinued financing activities
(35
)
 
(425
)
Effect of currency translation on cash
(16
)
 
(10
)
Effect of currency translation on cash related to discontinued operations
—

 
(1
)
Net decrease in cash and cash equivalents
(419
)
 
(272
)
Less: net (decrease) increase in cash and cash equivalents related to discontinued operations
(30
)
 
35

Cash and cash equivalents at beginning of period
844

 
1,229

Cash and cash equivalents at end of period
$
455

 
$
922

   See Notes to Unaudited Consolidated Financial Statements.

4

TYCO INTERNATIONAL LTD.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (UNAUDITED)
For the nine months ended June 28, 2013 and June 29, 2012
(in millions)
 
Number of
Common Shares
 
Common
Shares at
Par Value
 
Treasury
Shares
 
Contributed
Surplus
 
Accumulated
Earnings
 
Accumulated
Other
Comprehensive
(Loss)
Income
 
Total Tyco
Shareholders'
Equity
 
Nonredeemable
Noncontrolling
Interest
 
Total
Equity
Balance as of Balance as of September 30, 2011
465

 
$
2,792

 
$
(951
)
 
$
10,717

 
$
2,027

 
$
(436
)
 
$
14,149

 
$
5

 
$
14,154

Comprehensive income:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income
 

 
 

 
 

 
 

 
891

 
 

 
891

 
(1
)
 
890

Foreign currency translation, net of income tax expense of $1 million
 

 
 

 
 

 
 

 
 

 
(166
)
 
(166
)
 
 

 
(166
)
Unrealized gain on marketable securities and derivative instruments, net of income tax benefit of $3 million              
 

 
 

 
 

 
 

 
 

 
1

 
1

 
 

 
1

Defined benefit and post retirement plans, net of income tax expense of $6 million
 

 
 

 
 

 
 

 
 

 
11

 
11

 
 

 
11

Total comprehensive income
 

 
 

 
 

 
 

 
 

 
 

 
737

 
(1
)
 
736

Dividends declared
 

 
 

 
 

 
(229
)
 
 

 
 

 
(229
)
 
 

 
(229
)
Shares issued from treasury for vesting of share based equity awards
6

 
 

 
268

 
(128
)
 
 

 
 

 
140

 
 

 
140

Repurchase of common shares
(11
)
 
 

 
(500
)
 
 

 
 

 
 

 
(500
)
 
 

 
(500
)
Compensation expense
 

 
 

 
 

 
81

 
 

 
 

 
81

 
 

 
81

Noncontrolling interest related to acquisitions
 

 
 

 
 

 
 

 
 

 
 

 
—

 
13

 
13

Other
 

 
 

 
(22
)
 
 

 
 

 
 

 
(22
)
 
(1
)
 
(23
)
Balance as of Balance as of June 29, 2012
460

 
$
2,792

 
$
(1,205
)
 
$
10,441

 
$
2,918

 
$
(590
)
 
$
14,356

 
$
16

 
$
14,372


 
Number of
Common
Shares
 
Common
Shares at
Par Value
 
Treasury
Shares
 
Contributed
Surplus
 
Accumulated
Earnings
 
Accumulated
Other
Comprehensive
(Loss)
Income
 
Total Tyco
Shareholders'
Equity
 
Nonredeemable
Noncontrolling
Interest
 
Total
Equity
Balance as of September 28, 2012
462

 
$
2,792

 
$
(1,094
)
 
$
1,763

 
$
2,499

 
$
(966
)
 
$
4,994

 
$
16

 
$
5,010

Comprehensive income:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income
 

 
 

 
 

 
 

 
370

 
 

 
370

 
—

 
370

Foreign currency translation, net of income tax expense of $7 million
 

 
 

 
 

 
 

 
 

 
(225
)
 
(225
)
 
 

 
(225
)
Unrealized loss on marketable securities and derivative instruments, net of income tax benefit of $3 million              
 

 
 

 
 

 
 

 
 

 
—

 
—

 
 

 
—

Defined benefit and post retirement plans, net of income tax expense of $6 million
 

 
 

 
 

 
 

 
 

 
14

 
14

 
 

 
14

Total comprehensive income
 

 
 

 
 

 
 

 
 

 
 

 
159

 
—

 
159

Reallocation of share capital to contributed surplus
 
 
(2,584
)
 
 
 
2,584

 
 
 
 
 
—

 
 
 
—

Dividends declared
 

 
 

 
 

 
(297
)
 
 

 
 

 
(297
)
 
 
 
(297
)
Shares issued from treasury for vesting of share based equity awards
11

 
 

 
459

 
(334
)
 
 

 
 

 
125

 
 
 
125

Repurchase of common shares
(10
)
 
 

 
(300
)
 
 

 
 

 
 

 
(300
)
 
 
 
(300
)
Compensation expense
 

 
 

 
 

 
47

 
 

 
 

 
47

 
 
 
47

Other
(1
)
 
 

 
(35
)
 
14

 
 

 
 

 
(21
)
 
(1
)
 
(22
)
Balance as of June 28, 2013
462

 
$
208

 
$
(970
)
 
$
3,777

 
$
2,869

 
$
(1,177
)
 
$
4,707

 
$
15

 
$
4,722

   See Notes to Unaudited Consolidated Financial Statements.

5

TYCO INTERNATIONAL LTD.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS



1.    Basis of Presentation and Summary of Significant Accounting Policies
Basis of Presentation—The Consolidated Financial Statements included herein are unaudited, but in the opinion of management, such financial statements include all adjustments, consisting of normal recurring adjustments, necessary to summarize fairly the Company's financial position, results of operations and cash flows for the interim period. The unaudited Consolidated Financial Statements include the consolidated results of Tyco International Ltd., a corporation organized under the laws of Switzerland, and its subsidiaries (Tyco and all its subsidiaries, hereinafter collectively referred to as the "Company" or "Tyco"). The unaudited Consolidated Financial Statements have been prepared in United States dollars ("USD") and in accordance with the instructions to Form 10-Q under the Securities Exchange Act of 1934, as amended. The results reported in these unaudited Consolidated Financial Statements should not be taken as indicative of results that may be expected for the entire year. These financial statements should be read in conjunction with the Consolidated Financial Statements and accompanying notes contained in the Company's Annual Report on Form 10-K for the fiscal year ended September 28, 2012 (the "2012 Form 10-K").
Effective September 28, 2012, Tyco completed the spin-offs of The ADT Corporation ("ADT") and Pentair Ltd. (formerly known as Tyco Flow Control International Ltd. ("Tyco Flow Control")), formerly the North American residential security and flow control businesses of Tyco, respectively, into separate, publicly traded companies in the form of a distribution to Tyco shareholders. Immediately following the spin-off, Pentair, Inc. was merged with a subsidiary of Tyco Flow Control in a tax-free, all-stock merger (the "Merger"), with Pentair Ltd. ("Pentair") succeeding Pentair Inc. as an independent publicly traded company. The distribution was made on September 28, 2012, to Tyco shareholders of record on September 17, 2012. Each Tyco shareholder received 0.50 of a common share of ADT and approximately 0.24 of a common share of Pentair for each Tyco common share held on the record date. The distribution was structured to be tax-free to Tyco shareholders except to the extent of cash received in lieu of fractional shares. The distributions, the Merger and related transactions are collectively referred to herein as the "2012 Separation". As a result of the distribution, the operations of Tyco's former flow control and North American residential security businesses are now classified as discontinued operations in all periods presented.
After giving effect to the 2012 Separation, the Company operates and reports financial and operating information in the following three segments: North America Systems Installation & Services ("NA Installation & Services"), Rest of World Systems Installation & Services ("ROW Installation & Services") and Global Products. The Company also provides general corporate services to its segments which is reported as a fourth non-operating segment, Corporate and Other, and accordingly, prior period segment amounts have been recast to conform to the current period presentation. See Note 15.
References to 2013 and 2012 are to Tyco's fiscal quarters ending June 28, 2013 and June 29, 2012, respectively, unless otherwise indicated.
The Company has a 52 or 53-week fiscal year that ends on the last Friday in September. Fiscal years 2013 and 2012 are both 52-week years.
Recently Adopted Accounting Pronouncements—In June 2011, the Financial Accounting Standards Board ("FASB") issued authoritative guidance for the presentation of comprehensive income. The guidance amended the reporting of Other Comprehensive Income ("OCI") by eliminating the option to present OCI as part of the Consolidated Statement of Shareholders' Equity. The amendment will not impact the accounting for OCI, but only its presentation in the Company's Consolidated Financial Statements. The guidance requires that items of net income and OCI be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements which include total net income and its components, consecutively followed by total OCI and its components to arrive at total comprehensive income. In December 2011, the FASB issued authoritative guidance to defer the effective date for those aspects of the guidance relating to the presentation of reclassification adjustments out of Accumulated other comprehensive income ("AOCI") by component. The guidance, other than as it relates to the presentation of reclassification adjustments, became effective for Tyco in the first quarter of fiscal 2013 and was applied retrospectively to prior periods. See Note 14.
In September 2011, the FASB issued authoritative guidance which amends the process of testing goodwill for impairment. Additionally, in July 2012, the FASB issued authoritative guidance which similarly amended the process of testing indefinite-lived intangible assets for impairment. The guidance permits an entity to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not (defined as having a likelihood of more than fifty percent) that the fair value of a reporting unit or indefinite-lived intangible asset is less than its carrying amount. If an entity determines it is not more likely than not that the fair value of a reporting unit is less than its

6

TYCO INTERNATIONAL LTD.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


carrying amount, performing the traditional two step goodwill impairment test is unnecessary. If an entity concludes otherwise, it would be required to perform the first step of the two step goodwill impairment test. If the carrying amount of the reporting unit exceeds its fair value, then the entity is required to perform the second step of the goodwill impairment test. If an entity determines it is not more likely than not that the fair value of an indefinite-lived intangible asset is less than its carrying amount, then the entity is not required to take further action. If an entity concludes otherwise, it would be required to perform a quantitative impairment test by calculating the fair value of the asset and comparing it with its carrying amount. If the carrying amount of the reporting unit exceeds its fair value, then the entity shall recognize an impairment loss in an amount equal to that excess. However, an entity has the option to bypass the qualitative assessment in any period and proceed directly to the quantitative assessment. The guidance became effective for Tyco for interim impairment testing beginning in the first quarter of fiscal 2013.
Recently Issued Accounting Pronouncements—In January 2013, the FASB issued authoritative guidance clarifying the scope of disclosures about offsetting assets and liabilities. The guidance clarifies that the scope of the disclosures applies to derivatives accounted for in accordance with authoritative guidance for derivatives and hedging, including bifurcated embedded derivatives, repurchase agreements and reverse repurchase agreements, and securities borrowing and securities lending transactions that either offset or are subject to an enforceable master netting agreement or similar agreement. The guidance is applied retrospectively and will be effective for Tyco in the first fiscal quarter of fiscal 2014. The Company is currently assessing the impact, if any, the guidance will have on its disclosures.
In February 2013, the FASB issued authoritative guidance for the reporting of amounts reclassified out of AOCI. The amendment will not change the current requirements for reporting net income or OCI in the financial statements. The guidance requires the presentation, either on the face of the statement where net income is presented or in the notes, of the significant reclassifications out of AOCI by the respective line items of net income if the amount reclassified is required under U.S. generally accepted accounting principles ("U.S. GAAP") to be reclassified to net income in its entirety in the same reporting period. For other amounts that are not required under U.S. GAAP to be reclassified in their entirety to net income, the amendment requires a cross-reference to other disclosures under U.S. GAAP that provide additional detail about those amounts. The guidance will be effective for Tyco in the first quarter of fiscal 2014, with early adoption permitted. The Company is currently assessing the timing of its adoption along with what impact, if any, the guidance will have upon adoption.
In March 2013, the FASB issued authoritative guidance to resolve diversity in practice on the accounting for the cumulative translation adjustment ("CTA") when a parent either sells a part or all of its investment in a foreign entity or no longer holds a controlling financial interest in a subsidiary or group of assets within a foreign entity. The guidance requires that the parent release any CTA into net income when the parent ceases to have a controlling financial interest in a subsidiary or group of assets within a foreign entity which results in a substantially complete liquidation of the foreign entity; when the sale of an investment in a foreign entity results in the loss of a controlling financial interest; or where an acquirer obtains control of an acquiree in which it had an equity interest immediately before the acquisition date. The guidance does not change the requirement to release a pro rata portion of the CTA into net income upon a partial sale of an equity method investment that is a foreign entity. The guidance will be effective for Tyco in the first quarter of fiscal 2015, with early adoption permitted. The Company is currently assessing the timing of its adoption along with what impact, if any, the guidance will have upon adoption.
2.    2012 Separation Transaction
On September 28, 2012, the Company completed the spin-offs of ADT and Tyco Flow Control, formerly the North American residential security and flow control businesses of Tyco, respectively, into separate, publicly traded companies in the form of a distribution to Tyco shareholders.

7

TYCO INTERNATIONAL LTD.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


In connection with activities taken to complete the 2012 Separation and to create the revised organizational structure of the Company, the Company incurred pre-tax charges ("Separation Charges") of $19 million and $72 million during the quarters ended June 28, 2013 and June 29, 2012, respectively, and $51 million and $196 million for the nine months ended June 28, 2013 and June 29, 2012, respectively. The amounts presented within discontinued operations are costs directly related to the 2012 Separation that are not expected to provide a future benefit to the Company. The components of the Separation Charges incurred within continuing operations and discontinued operations consisted of the following ($ in millions):
 
For the Quarter Ended 
 June 28, 2013
 
For the Quarter Ended 
 June 29, 2012
 
Continuing
Operations
 
Discontinued
Operations
 
Total
 
Continuing
Operations
 
Discontinued
Operations
 
Total
Professional fees
$
3

 
$
(1
)
 
$
2

 
$
—

 
$
30

 
$
30

Information technology related costs
3

 
(2
)
 
1

 
—

 
18

 
18

Employee compensation costs
3

 
—

 
3

 
9

 
3

 
12

Marketing costs
8

 
—

 
8

 
—

 
1

 
1

Interest expense
—

 
—

 
—

 
—

 
3

 
3

Other
5

 
—

 
5

 
1

 
7

 
8

Total pre-tax separation charges (gain)
22

 
(3
)
 
19

 
10

 
62

 
72

Tax-related separation charges
2

 
—

 
2

 
18

 
—

 
18

Tax benefit on pre-tax separation charges                        
(3
)
 
—

 
(3
)
 
(1
)
 
—

 
(1
)
Total separation charges (gain), net of tax
$
21

 
$
(3
)
 
$
18

 
$
27

 
$
62

 
$
89

 
 
For the Nine Months Ended  
 June 28, 2013
 
For the Nine Months Ended  
 June 29, 2012
 
Continuing
Operations
 
Discontinued
Operations
 
Total
 
Continuing
Operations
 
Discontinued
Operations
 
Total
Professional fees
$
3

 
$
3

 
$
6

 
$
—

 
$
107

 
$
107

Non-cash impairment charges
—

 
—

 
—

 
23

 
—

 
23

Information technology related costs
7

 
—

 
7

 
—

 
24

 
24

Employee compensation costs
3

 
2

 
5

 
16

 
5

 
21

Marketing costs
35

 
—

 
35

 
—

 
3

 
3

Interest expense
—

 
—

 
—

 
—

 
3

 
3

Other
8

 
(10
)
 
(2
)
 
1

 
14

 
15

Total pre-tax separation charges (gain)
56

 
(5
)
 
51

 
40

 
156

 
196

Tax-related separation charges
6

 
—

 
6

 
19

 
—

 
19

Tax benefit on pre-tax separation charges                        
(5
)
 
—

 
(5
)
 
(2
)
 
—

 
(2
)
Total separation charges (gain), net of tax
$
57

 
$
(5
)
 
$
52

 
$
57

 
$
156

 
$
213


8

TYCO INTERNATIONAL LTD.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


Pre-tax Separation Charges were classified in continuing operations within the Company's Consolidated Statement of Operations as follows ($ in millions):
 
For the Quarters
Ended
 
For the Nine
Months Ended
 
June 28, 2013

 
June 29, 2012

 
June 28, 2013

 
June 29, 2012

Selling, general and administrative expenses ("SG&A")
$
18

 
$
1

 
$
47

 
$
1

Separation costs
4

 
6

 
9

 
10

Restructuring and asset impairments charges, net
—


3

 
—

 
29

Total
$
22

 
$
10

 
$
56

 
$
40

3.    Divestitures
The Company continually assesses the strategic fit of its various businesses and from time to time divests businesses which do not align with its long-term strategy.
During the third quarter of fiscal 2013, the Company completed the sale of its North America guarding business in its NA Installation & Services segment for approximately $25 million of cash proceeds, net of $2 million of cash divested on sale. This business was accounted for as held for sale during the second quarter of fiscal 2013 and presented as held for sale as of September 28, 2012; however, its results of operations have not been presented in discontinued operations as the amounts were not material to the Consolidated Financial Statements. As of September 28, 2012, total assets to be divested of $35 million are included in Prepaid expenses and other current assets and total liabilities to be divested of $8 million are included in Accrued and other current liabilities on the accompanying Consolidated Balance Sheets. The assets and liabilities have not been presented separately in the Consolidated Balance Sheets as the amounts were not material.
Discontinued Operations
On September 28, 2012, Tyco completed the 2012 Separation and has presented its former North American residential security and flow control businesses as discontinued operations in all periods prior to the completion of the 2012 Separation. See Note 1 for additional information regarding the 2012 Separation. At the time of the 2012 Separation, the Company used available information to develop its best estimates for certain assets and liabilities related to the Separation. In limited instances, final determination of the balances will be made in subsequent periods, such as in the case of when final income tax returns are filed in certain jurisdictions where those returns include a combination of Tyco, ADT and/or Tyco Flow Control legal entities. During the quarter ended June 28, 2013, a net increase of $59 million was recorded within the Consolidated Statement of Shareholders' Equity as Other, primarily related to a cash true-up adjustment from Pentair. During the nine months ended June 28, 2013, a net increase of $14 million was recorded within the Consolidated Statement of Shareholders' Equity as Other, primarily related to the cash true-up adjustment received from Pentair as discussed above, partially offset by a cash true-up adjustment paid to ADT during the first quarter of fiscal 2013. Any additional adjustments are not expected to be material.
Additionally, the quarter and nine months ended June 29, 2012 include $10 million and $21 million, respectively, of income tax expense associated with tax liabilities preceding the spin-offs of Covidien plc and TE Connectivity Ltd. (the "2007 Separation"), which was recorded in income from discontinued operations, net of income taxes in the Company's Consolidated Statements of Operations. The Company was reimbursed $8 million pursuant to a tax sharing agreement (the "2007 Tax Sharing Agreement") entered into in conjunction with the 2007 Separation, which was also recorded in income from discontinued operations, net of income taxes.
During the nine months ended June 29, 2012, the Company sold its Fire Equipment de Mexico, S.A. business, which was part of the Company's Global Products segment. The sale was completed for approximately $1 million of cash consideration and a pre-tax loss of $3 million was recorded in income from discontinued operations, net of income taxes in the Company's Consolidated Statements of Operations.

9

TYCO INTERNATIONAL LTD.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


Net revenue, pre-tax income, pre-tax separation gain (charges), net, pre-tax gain on sale of discontinued operations, income tax expense and income from discontinued operations, net of income taxes are as follows ($ millions):
 
For the Quarters
Ended
 
For the Nine
Months Ended
 
June 28,
2013

 
June 29,
2012

 
June 28,
2013

 
June 29,
2012

Net revenue
$
—

 
$
1,795

 
$
—

 
$
5,316

Pre-tax income
$
—

 
$
311

 
$
—

 
$
933

Pre-tax separation gain (charges), net (See Note 2)
3

 
(62
)
 
5

 
(156
)
Pre-tax gain on sale of discontinued operations
—

 
—

 
—

 
5

Income tax expense
—

 
(68
)
 
—

 
(188
)
Income from discontinued operations, net of income taxes
$
3

 
$
181

 
$
5

 
$
594

Divestiture Charges (Gains), Net
During the quarter and the nine months ended June 28, 2013, the Company recorded a net loss of $4 million and $10 million, respectively, in Selling, general and administrative expenses in the Company's Consolidated Statements of Operations. The net loss for the quarter ended June 28, 2013 was primarily related to a net charge recorded in respect of a legacy environmental remediation obligation of a divested business. The net loss for the nine months ended June 28, 2013 also included a net indemnification loss related to the divestiture of the Company's Electrical and Metal Products business as well as the write-down to fair value, less cost to sell, of the North America guarding business that was held for sale in the second quarter of fiscal 2013 and subsequently divested in the third quarter of fiscal 2013.
For the quarter and nine months ended June 29, 2012, the Company recorded a net loss of $9 million and $12 million, respectively, in Selling, general and administrative expenses in the Company's Consolidated Statements of Operations in connection with an indemnification of approximately $8 million for both periods resulting from the divestiture of the Company's Electrical and Metal products business as well as the write-down to fair value, less cost to sell, of certain businesses that were divested.

4.    Restructuring and Asset Impairment Charges, Net
The Company continues to identify and pursue opportunities for cost savings through restructuring activities and workforce reductions to improve operating efficiencies across its businesses. The Company expects to incur restructuring and restructuring related charges of approximately $100 million in fiscal 2013, which does not include repositioning charges as described below.
The Company recorded restructuring and asset impairment charges by action within restructuring and asset impairment charges, net in the Consolidated Statement of Operations as follows ($ in millions):
 
For the Quarter Ended 
 June 28, 2013
 
For the Quarter Ended 
 June 29, 2012
 
For the Nine Months Ended  
 June 28, 2013
 
For the Nine Months Ended  
 June 29, 2012
2013 actions
$
51

 
$
—

 
$
72

 
$
—

2012 actions
(1
)
 
16

 
5

 
58

2011 and prior actions
3

 
1

 
8

 
11

Total
$
53

 
$
17

 
$
85

 
$
69


10

TYCO INTERNATIONAL LTD.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


2013 Actions
Restructuring and asset impairment charges, net, during the quarter and nine months ended June 28, 2013 related to the 2013 actions are as follows ($ in millions):
 
For the Quarter Ended 
 June 28, 2013
 
Employee
Severance and
Benefits
 
Facility Exit
and Other
Charges
 
Total
NA Installation & Services
$
17

 
$
(1
)
 
$
16

ROW Installation & Services
30

 
1

 
31

Global Products
2

 
2

 
4

Total
$
49

 
$
2

 
$
51

 `
 
For the Nine Months Ended  
 June 28, 2013
 
Employee
Severance and
Benefits
 
Facility Exit
and Other
Charges
 
Total
NA Installation & Services
$
21

 
$
1

 
$
22

ROW Installation & Services
39

 
2

 
41

Global Products
6

 
2

 
8

Corporate and Other
1

 
—

 
1

Total
$
67

 
$
5

 
$
72

The rollforward of the reserves from September 28, 2012 to June 28, 2013 is as follows ($ in millions):
Balance as of September 28, 2012
$
—

Charges
78

Reversals
(6
)
Utilization
(14
)
Currency translation
(1
)
Balance as of June 28, 2013
$
57

2012 Actions
Restructuring and asset impairment charges, net, during the quarters and nine months ended June 28, 2013 and June 29, 2012 related to the 2012 actions are as follows ($ in millions):
 
For the Quarter Ended 
 June 28, 2013
 
Employee
Severance and
Benefits
ROW Installation & Services
$
(1
)


11

TYCO INTERNATIONAL LTD.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


 
For the Quarter Ended 
 June 29, 2012
 
Employee
Severance and
Benefits
 
Facility Exit
and Other
Charges
 
Charges Reflected in SG&A
 
Total
ROW Installation & Services
$
8

 
$
2

 
$
1

 
$
11

Global Products
1

 
—

 
—

 
1

Corporate and Other
2

 
2

 
—

 
4

Total
$
11

 
$
4

 
1

 
$
16

 
 
For the Nine Months Ended  
 June 28, 2013
 
Employee
Severance and
Benefits
ROW Installation & Services
$
4

Global Products
1

Total
$
5

 
 
For the Nine Months Ended  
 June 29, 2012
 
Employee
Severance and
Benefits
 
Facility Exit
and Other
Charges(1)
 
Charges Reflected in SG&A
 
Total
NA Installation & Services
$
8

 
$
20

 
$
—

 
$
28

ROW Installation & Services
12

 
5

 
1

 
18

Global Products
3

 
3

 
—

 
6

Corporate and Other
3

 
3

 
—

 
6

Total
$
26

 
$
31

 
$
1

 
$
58

_______________________________________________________________________________

(1) 
Includes $20 million, $1 million and $2 million of asset impairment charges recorded by NA Installation & Services, ROW Installation & Services and Global Products, respectively, for the nine months ended June 29, 2012 related to the 2012 Separation.
Restructuring and asset impairment charges, net, incurred cumulative to date from initiation of the 2012 actions are as follows ($ in millions):
 
Employee
Severance and
Benefits
 
Facility Exit
and Other
Charges
 
Total
NA Installation & Services
$
10

 
$
34

 
$
44

ROW Installation & Services
26

 
5

 
31

Global Products
8

 
3

 
11

Corporate and Other
9

 
4

 
13

Total
$
53

 
$
46

 
$
99


12

TYCO INTERNATIONAL LTD.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


The rollforward of the reserves from September 28, 2012 to June 28, 2013 is as follows ($ in millions):
Balance as of September 28, 2012
$
38

Charges
6

Reversals
(1
)
Utilization
(21
)
Reclass
(1
)
Currency translation
(1
)
Balance as of June 28, 2013
$
20

2011 and prior actions
The Company continues to maintain restructuring reserves related to actions initiated prior to fiscal 2012. The total amount of these reserves was $48 million and $65 million as of June 28, 2013 and September 28, 2012, respectively. The Company incurred $3 million and $8 million of restructuring charges, net and utilized $5 million and $26 million for the quarter and nine months ended June 28, 2013, respectively. The Company incurred $1 million and $11 million of restructuring charges, net for the quarter and nine months ended June 29, 2012, respectively, related to 2011 and prior actions. The aggregate remaining reserves primarily relate to facility exit costs for long-term non-cancelable lease obligations primarily within the Company's ROW Installation & Services segment.
Total Restructuring Reserves
As of June 28, 2013 and September 28, 2012, restructuring reserves related to all actions were included in the Company's Consolidated Balance Sheets as follows ($ in millions):
 
As of
 
June 28, 2013
 
September 28,
2012
Accrued and other current liabilities
$
109

 
$
84

Other liabilities
16

 
19

Total
$
125

 
$
103

Repositioning
The Company has initiated certain global actions designed to reduce its cost structure and improve future profitability by streamlining operations and better aligning functions, which the Company refers to as repositioning actions. These actions may or may not lead to a future restructuring action. During the quarter and the nine months ended June 28, 2013, the Company recorded repositioning charges of $5 million and $9 million, respectively, primarily related to professional fees which have been reflected in Selling, general and administrative expenses in the Consolidated Statement of Operations. There were no repositioning charges incurred during fiscal 2012.
5.    Acquisitions
Acquisitions
During the quarter ended June 28, 2013, cash paid for acquisitions included in continuing operations totaled $37 million, which is related to an acquisition within the Company's ROW Installation & Services segment. During the nine months ended June 28, 2013, cash paid for acquisitions included in continuing operations totaled $75 million, net of $3 million cash acquired, which is related to acquisitions within the Company's NA Installation & Services and ROW Installation & Services segments.
During the quarter ended June 29, 2012, cash paid for acquisitions included in continuing operations totaled $12 million, net of cash acquired of $1 million related to an acquisition within the Company's Global Products segment. During the nine months ended June 29, 2012, cash paid for acquisitions included in continuing operations totaled $217 million, net of $16 million cash acquired, which includes the acquisition of Visonic Ltd. ("Visonic") and several acquisitions, none of which were individually material, that were included in the Global Products and ROW Installation & Services segments. Visonic is a global

13

TYCO INTERNATIONAL LTD.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


developer and manufacturer of electronic security systems and components. Cash paid for Visonic totaled approximately $94 million, net of $5 million cash acquired by the Company's Global Products segment.
Acquisition and Integration Related Costs
Acquisition and integration costs are expensed as incurred. During the quarter and nine months ended June 28, 2013, the Company incurred acquisition and integration costs of $1 million and $2 million, respectively. During the quarter and the nine months ended June 29, 2012, the Company incurred acquisition and integration costs of $4 million and $7 million, respectively. Such costs are recorded in Selling, general and administrative expenses in the Company's Consolidated Statements of Operations.
6.    Income Taxes
Tyco did not have a significant change to its unrecognized tax benefits during the quarter ended June 28, 2013.
Many of Tyco's uncertain tax positions relate to tax years that remain subject to audit by the taxing authorities in U.S. federal, state and local or foreign jurisdictions. Open tax years in significant jurisdictions are as follows:
Jurisdiction
Years Open
To Audit
Australia
2004-2012
Canada
2002-2012
Germany
2005-2012
South Korea
2008-2012
Switzerland
2003-2012
United Kingdom
2011-2012
United States
1997-2012
Based on the current status of its income tax audits, Tyco believes that it is reasonably possible that between nil and $30 million in unrecognized tax benefits may be resolved in the next twelve months.
At each balance sheet date, the Company evaluates whether it is more likely than not that Tyco's deferred tax assets will be realized and if sufficient future taxable income will be available by assessing current period and projected operating results and other pertinent data. As of June 28, 2013, Tyco recorded deferred tax assets of approximately $500 million, which is comprised of $2.4 billion gross deferred tax assets net of $1.9 billion valuation allowances.
Tax Sharing Agreement and Other Income Tax Matters
In connection with the 2012 and 2007 Separations, Tyco entered into the 2012 and 2007 Tax Sharing Agreements, respectively, that govern the respective rights, responsibilities, and obligations of Tyco, Pentair and ADT after the 2012 Separation and Tyco, Covidien and TE Connectivity after the 2007 Separation with respect to taxes. Specifically this includes ordinary course of business taxes and taxes, if any, incurred as a result of any failure of the respective distributions to qualify tax-free for U.S. federal income tax purposes within the meaning of Section 355 of the Internal Revenue Code ("the Code") or certain internal transactions undertaken in anticipation of the spin-offs to qualify for tax-favored treatment under the Code.
Under the 2012 Tax Sharing Agreement, Tyco, Pentair and ADT share (i) certain pre-Distribution income tax liabilities that arise from adjustments made by tax authorities to ADT's, Tyco Flow Control's and Tyco's income tax returns, and (ii) payments required to be made by Tyco with respect to the 2007 Tax Sharing Agreement, excluding approximately $175 million of pre-2012 Separation related tax liabilities that were anticipated to be paid prior to the 2012 Separation (collectively, "Shared Tax Liabilities"). Tyco will be responsible for the first $500 million of Shared Tax Liabilities. Pentair and ADT will share 42% and 58%, respectively, of the next $225 million of Shared Tax Liabilities. Tyco, Pentair and ADT will share 52.5%, 20% and 27.5%, respectively, of Shared Tax Liabilities above $725 million. All costs and expenses associated with the management of these shared tax liabilities will generally be shared 20%, 27.5%, and 52.5% by Pentair, ADT and Tyco, respectively. As of September 28, 2012, Tyco established liabilities representing the fair market value of its obligations under the 2012 Tax Sharing Arrangement which is recorded in other liabilities in Tyco's Consolidated Balance Sheet with an offset to Tyco shareholders' equity.

14

TYCO INTERNATIONAL LTD.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


Under the 2007 Tax Sharing Agreement, Tyco shares responsibility for certain of its, Covidien's and TE Connectivity's income tax liabilities, which result in cash payments, based on a sharing formula for periods prior to and including June 29, 2007. More specifically, Tyco, Covidien and TE Connectivity share 27%, 42% and 31%, respectively, of shared income tax liabilities that arise from adjustments made by tax authorities to Tyco's, Covidien's and TE Connectivity's U.S. and certain non-U.S. income tax returns. The costs and expenses associated with the management of these shared tax liabilities are generally shared equally among the parties. In connection with the execution of the 2007 Tax Sharing Agreement, Tyco established a net receivable from Covidien and TE Connectivity representing the amount Tyco expected to receive for pre-2007 Separation uncertain tax positions, including amounts owed to the Internal Revenue Service ("IRS"). Tyco also established liabilities representing the fair market value of its share of Covidien's and TE Connectivity's estimated obligations, primarily to the IRS, for their pre-2007 Separation taxes covered by the 2007 Tax Sharing Agreement.
Tyco assesses the shared tax liabilities and related guaranteed liabilities related to both the 2012 and 2007 Tax Sharing Agreements at each reporting period. Tyco will provide payment to Pentair and ADT under the 2012 Tax Sharing Agreement and Covidien and TE Connectivity under the 2007 Tax Sharing Agreement as the shared income tax liabilities are settled. Settlement is expected to occur as the tax audit and legal processes are completed for the impacted years and cash payments are made. Due to the nature of the unresolved adjustments described in the next paragraph, the maximum amount of future payments under the 2012 and 2007 Tax Sharing Agreements is not known. Such cash payments, when they occur, will reduce the guarantor liability as such payments represent an equivalent reduction of risk. Tyco also assesses the sufficiency of the 2012 and 2007 Tax Sharing Agreements guarantee liabilities on a quarterly basis and will increase the liability when it is probable that cash payments expected to be made under the 2012 or 2007 Tax Sharing Agreements exceed the recorded balance.
Tyco and its subsidiaries' income tax returns are examined periodically by various tax authorities. In connection with these examinations, tax authorities, including the IRS, have raised issues and proposed tax adjustments, in particular with respect to years preceding the 2007 Separation. The issues and proposed adjustments related to such years are generally subject to the sharing provisions of the 2007 Tax Sharing Agreement and Tyco's liabilities under the 2007 Tax Sharing Agreement are further subject to the sharing provisions in the 2012 Tax Sharing Agreement. Tyco has previously disclosed that in connection with U.S. federal tax audits, the IRS has raised a number of issues and proposed tax adjustments for periods beginning with the 1997 tax year. Although Tyco has been able to resolve substantially all of the issues and adjustments proposed by the IRS for tax years through 2007, it has not been able to resolve matters related to the treatment of certain intercompany debt transactions during the period. As a result, on June 20, 2013, Tyco received Notices of Deficiency from the IRS asserting that several of Tyco's former U.S. subsidiaries owe additional taxes of $883.3 million plus penalties of $154 million based on audits of the 1997 through 2000 tax years of Tyco and its subsidiaries as they existed at that time. In addition, Tyco received Final Partnership Administrative Adjustments for certain U.S. partnerships owned by former U.S. subsidiaries with respect to which an additional tax deficiency of approximately $30 million is expected to be asserted. These amounts exclude interest and do not reflect the impact on subsequent periods if the IRS position described below is ultimately proved correct.
The IRS asserted in the Notices of Deficiency that substantially all of Tyco's intercompany debt originated during the 1997 - 2000 period should not be treated as debt for U.S. federal income tax purposes, and has disallowed interest and related deductions recognized on U.S. income tax returns totaling approximately $2.9 billion. Tyco strongly disagrees with the IRS position and had filed petitions with the U.S. Tax Court contesting the IRS proposed adjustments. Tyco believes that it has meritorious defenses for its tax filings, that the IRS positions with regard to these matters are inconsistent with the applicable tax laws and existing Treasury regulations, and that the previously reported taxes for the years in question are appropriate.
No payments with respect to these matters would be required until the dispute is definitively resolved, which, based on the experience of other companies, could take several years. Tyco believes that its income tax reserves and the liabilities recorded in the Consolidated Balance Sheet for the tax sharing agreements continue to be appropriate. However, the ultimate resolution of these matters, and the impact of that resolution, are uncertain and could have a material impact on Tyco's financial condition, results of operations and cash flows. In particular, if the IRS is successful in asserting its claim, it would have an adverse impact on interest deductions related to the same intercompany debt in subsequent time periods, totaling approximately $6.6 billion, which is also expected to be disallowed by the IRS.
As noted above, Tyco has assessed its obligations under the 2007 Tax Sharing Agreement to determine that its recorded liability is sufficient to cover the indemnifications made by it under such agreement. In the absence of observable transactions for identical or similar guarantees, Tyco determined the fair value of these guarantees and indemnifications utilizing expected present value measurement techniques. Significant assumptions utilized to determine fair value included determining a range of potential outcomes, assigning a probability weighting to each potential outcome and estimating the anticipated timing of resolution. The probability weighted outcomes were discounted using Tyco's incremental borrowing rate.

15

TYCO INTERNATIONAL LTD.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


However, the ultimate resolution of these matters is uncertain and could result in a material adverse impact to the Company's financial position, results of operations, cash flows, or the effective tax rate in future reporting periods.
In connection with the aforementioned audits, the IRS has assessed a civil fraud penalty of $21 million during the first quarter of fiscal 2013 against a prior subsidiary that was distributed to TE Connectivity in connection with the 2007 Separation. The penalties arise from actions of former executives taken in connection with intercompany transfers of stock of Simplex Technologies in 1998 and 1999. This is a pre-2007 Separation tax liability that is covered by the provisions of the 2007 Tax Sharing Agreement.
In addition to dealing with tax liabilities for periods prior to the respective Separations, the 2012 and 2007 Tax Sharing Agreements contain sharing provisions to address the contingencies that the 2012 or 2007 Separations, or internal transactions related thereto, may be deemed taxable by U.S. or non U.S. taxing authorities. In the event the 2012 Separation is determined to be taxable and such determination was the result of actions taken after the 2012 Separations by Tyco, ADT or Pentair, the party responsible for such failure would be responsible for all taxes imposed on each company as a result thereof. If such determination is not the result of actions taken by Tyco, ADT or Pentair after the 2012 Separation, then Tyco, ADT and Pentair would be responsible for any taxes imposed on any of the companies as a result of such determination in the same manner and in the same proportions as described above. Similar provisions exist in the 2007 Tax Sharing Agreement. If either of the 2007 or 2012 Separation, or internal transactions taken in anticipation thereof, were deemed taxable, the associated liability could be significant. Tyco is responsible for all of its own taxes that are not shared pursuant to the 2012 and 2007 Tax Sharing Agreements sharing formulas. In addition, Pentair and ADT, and Covidien and TE Connectivity are responsible for their tax liabilities that are not subject to the 2012 or 2007 Tax Sharing Agreements' sharing formula, respectively.
Each of the 2012 and 2007 Tax Sharing Agreements provides that, if any party to such agreement were to default in its obligation to another party to pay its share of the distribution taxes that arise as a result of no party's fault, each non-defaulting party to the agreement would be required to pay, equally with any other non-defaulting party to the agreement, the amounts in default. In addition, if another party to the 2012 or 2007 Tax Sharing Agreements that is responsible for all or a portion of an income tax liability were to default in its payment of such liability to a taxing authority, Tyco could be liable under applicable tax law for such liabilities and required to make additional tax payments. Accordingly, under certain circumstances, Tyco may be obligated to pay amounts in excess of its agreed-upon share of its tax liabilities under either of the 2012 or 2007 Tax Sharing Agreements.
The receivables and liabilities related to the 2012 and 2007 Tax Sharing Agreements as of June 28, 2013 and September 28, 2012, are as follows ($ in millions):
 
2012 Tax Sharing Agreement
 
2007 Tax Sharing Agreement
 
As of
 
As of
 
June 28, 2013
 
September 28, 2012
 
June 28, 2013
 
September 28, 2012
Prepaid expenses and other current assets
$
—

 
$
—

 
$
—

 
$
9

Other assets
—

 
—

 
67

 
66

 
—

 
—

 
67

 
75

Accrued and other current liabilities
(33
)
 
—

 
(130
)
 
(14
)
Other liabilities
(36
)
 
(71
)
 
(254
)
 
(394
)
 
(69
)
 
(71
)
 
(384
)
 
(408
)
Net liability
$
(69
)
 
$
(71
)
 
$
(317
)
 
$
(333
)
Tyco recorded (loss) income in conjunction with the 2012 and 2007 Tax Sharing Agreements within Other (expense) income, net in the Consolidated Statements of Operations for the quarters and nine months ended June 28, 2013 and June 29, 2012 as follows ($ in millions):

16

TYCO INTERNATIONAL LTD.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


 
For the Quarters Ended
 
For the Nine Months Ended
 
June 28, 2013
 
June 29, 2012
 
June 28, 2013
 
June 29, 2012
(Loss) income
 
 
 
 
 
 
 
2012 Tax Sharing Agreement
$
(1
)
 
N/A

 
$
(31
)
 
N/A

2007 Tax Sharing Agreement
—

 
1

 
—

 
(3
)
As a result of the 2012 separation, equity awards of certain employees were converted into the three companies. Pursuant to the terms of the 2012 Separation and Distribution Agreement, each of the three companies is responsible for issuing its own shares upon employee exercise of a stock option award or vesting of a restricted unit award. However, the 2012 Tax Sharing Agreement provides that any allowable compensation tax deduction for such awards is to be claimed by the employee's current employer. The 2012 Tax Sharing Agreement requires the employer claiming a tax deduction for shares issued by the other companies to pay a percentage of the allowable tax deduction to the company issuing the equity.
During the quarter and the nine months ended June 28, 2013, Tyco incurred a charge of $1 million and $35 million, respectively, to make payments to ADT and Pentair based on estimated allowable deductions for ADT and Pentair shares issued to Company employees, offset by income of nil and $4 million, respectively, to be received from ADT and Pentair for Company shares issued to their employees, resulting in a net impact of approximately $1 million and $31 million, respectively, which was recorded in Other (expense) income, net within Tyco's Consolidated Statement of Operations.
Other Income Tax Matters
Except for earnings that are currently distributed, no additional material provision has been made for U.S. or non-U.S. income taxes on the undistributed earnings of subsidiaries or for unrecognized deferred tax liabilities for temporary differences related to investments in subsidiaries, since the earnings are expected to be permanently reinvested, the investments are essentially permanent in duration, or Tyco has concluded that no additional tax liability will arise as a result of the distribution of such earnings. A liability could arise if amounts are distributed by such subsidiaries or if such subsidiaries are ultimately disposed of. It is not practicable to estimate the additional income taxes related to permanently reinvested earnings or the basis differences related to investments in subsidiaries.
7.    Earnings Per Share
The reconciliations between basic and diluted earnings per share attributable to Tyco common shareholders are as follows (in millions, except per share data):
 
For the Quarter Ended 
 June 28, 2013
 
For the Quarter Ended 
 June 29, 2012
 
Income
 
Shares
 
Per Share
Amount
 
Income
 
Shares
 
Per Share
Amount
Basic earnings per share attributable to Tyco common shareholders:
 
 
 
 
 
 
 
 
 
 
 
Income from continuing operations
$
132

 
463

 
$
0.29

 
$
65

 
463

 
$
0.14

Share options and restricted share awards
—

 
8

 
 
 
—

 
7

 
 
Diluted earnings per share attributable to Tyco common shareholders:
 
 
 
 
 
 
 
 
 
 
 
Income from continuing operations attributable to Tyco common shareholders, giving effect to dilutive adjustments
$
132

 
471

 
$
0.28

 
$
65

 
470

 
$
0.14


17

TYCO INTERNATIONAL LTD.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


 
 
For the Nine Months Ended
June 28, 2013
 
For the Nine Months Ended
June 29, 2012
 
Income
 
Shares
 
Per Share
Amount
 
Income
 
Shares
 
Per Share
Amount
Basic earnings per share attributable to Tyco common shareholders:
 
 
 
 
 
 
 
 
 
 
 
Income from continuing operations
$
365

 
465

 
$
0.79

 
$
297

 
463

 
$
0.64

Share options and restricted share awards
—

 
8

 
 
 
—

 
6

 
 
Diluted earnings per share attributable to Tyco common shareholders:
 
 
 
 
 
 
 
 
 
 
 
Income from continuing operations attributable to Tyco common shareholders, giving effect to dilutive adjustments
$
365

 
473

 
$
0.77

 
$
297

 
469

 
$
0.63

The computation of diluted earnings per share for the quarter and the nine months ended June 28, 2013 excludes the effect of the potential exercise of share options to purchase approximately 4 million and 5 million shares, respectively, and excludes restricted stock units of approximately 1 million shares for both periods because the effect would be anti-dilutive.
The computation of diluted earnings per share for the quarter and the nine months ended June 29, 2012 excludes the effect of the potential exercise of share options to purchase approximately 6 million and 8 million shares, respectively, and excludes restricted stock units of nil for both periods because the effect would be anti-dilutive.
8.    Goodwill and Intangible Assets
The changes in the carrying amount of goodwill by segment are as follows ($ in millions):
 
NA Installation &
Services
 
ROW
Installation &
Services
 
Global
Products
 
Total
As of September 30, 2011
 
 
 
 
 
 
 
Gross Goodwill
$
2,119

 
$
2,241

 
$
1,629

 
$
5,989

Impairments
(126
)
 
(1,068
)
 
(567
)
 
(1,761
)
Carrying Amount of Goodwill
1,993

 
1,173

 
1,062

 
4,228

Acquisitions/Purchase Accounting Adjustments
—

 
38

 
66

 
104

Currency Translation
8

 
26

 
1

 
35

As of September 28, 2012
 
 
 
 
 
 
 
Gross Goodwill
2,127

 
2,305

 
1,696

 
6,128

Impairments
(126
)
 
(1,068
)
 
(567
)
 
(1,761
)
Carrying Amount of Goodwill
2,001

 
1,237

 
1,129

 
4,367

Acquisitions/Purchase Accounting Adjustments
24

 
28

 
(2
)
 
50

Transfers
(39
)
 
—

 
39

 
—

Currency Translation
(11
)
 
(75
)
 
(9
)
 
(95
)
As of June 28, 2013
 
 
 
 
 
 
 
Gross Goodwill
2,101

 
2,258

 
1,724

 
6,083

Impairments
(126
)
 
(1,068
)
 
(567
)
 
(1,761
)
Carrying Amount of Goodwill
$
1,975

 
$
1,190

 
$
1,157

 
$
4,322

The following table sets forth the gross carrying amount and accumulated amortization of the Company's intangible assets as of June 28, 2013 and September 28, 2012 ($ in millions):

18

TYCO INTERNATIONAL LTD.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


 
As of
 
June 28, 2013
 
September 28, 2012
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Gross
Carrying
Amount
 
Accumulated
Amortization
Amortizable:
 
 
 
 
 
 
 
Contracts and related customer relationships
$
1,542

 
$
1,227

 
$
1,604

 
$
1,245

Intellectual property
550

 
471

 
552

 
468

Other
38

 
14

 
36

 
9

Total
$
2,130

 
$
1,712

 
$
2,192

 
$
1,722

Non-Amortizable:
 
 
 
 
 
 
 
Intellectual property
$
222

 
 

 
$
224

 
 
Franchise rights
76

 
 

 
77

 
 
Total
$
298

 
 

 
$
301

 
 
Intangible asset amortization expense for the quarters ended June 28, 2013 and June 29, 2012 was $24 million and $26 million, respectively. Intangible asset amortization expense for the nine months ended June 28, 2013 and June 29, 2012 was $75 million and $77 million, respectively.
The estimated aggregate amortization expense on intangible assets is expected to be approximately $25 million for the remainder of 2013, $80 million for 2014, $67 million for 2015, $62 million for 2016, $51 million for 2017 and $133 million for 2018 and thereafter.
9.    Debt
Debt as of June 28, 2013 and September 28, 2012 is as follows ($ in millions):
 
As of
 
June 28,
2013

 
September 28,
2012

3.375% public notes due 2015
$
258

 
$
257

3.75% public notes due 2018
67

 
67

8.5% public notes due 2019
364

 
364

7.0% public notes due 2019
246

 
247

6.875% public notes due 2021
466

 
466

4.625% public notes due 2023
42

 
42

Other(1)(2)
38

 
48

Total debt
1,481

 
1,491

Less current portion
19

 
10

Long-term debt
$
1,462

 
$
1,481

_______________________________________________________________________________

(1) 
$19 million of the amount shown as other, comprises the current portion of the Company's total debt as of June 28, 2013.
(2) 
$10 million of the amount shown as other, comprises the current portion of the Company's total debt as of September 28, 2012.
Fair Value
The carrying amount of Tyco's debt subject to the fair value disclosure requirements as of June 28, 2013 and September 28, 2012 was $1,443 million for both periods. The Company utilizes various valuation methodologies to determine the fair value of its debt, which is primarily dependent on the type of market in which the Company's debt is traded. When

19

TYCO INTERNATIONAL LTD.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


available, the Company uses quoted market prices to determine the fair value of its debt that is traded in active markets. As of June 28, 2013 and September 28, 2012, the fair value of the Company's debt which was actively traded was $1,662 million and $1,786 million, respectively. As of June 28, 2013 and September 28, 2012, the Company's debt that was subject to the fair value disclosure requirements was all actively traded and is classified as Level 1 in the fair value hierarchy.
Commercial paper
From time to time Tyco International Finance S.A. ("TIFSA") may issue commercial paper for general corporate purposes. The maximum aggregate amount of unsecured commercial paper notes available to be issued on a private placement basis under the commercial paper program is $1.0 billion as of June 28, 2013. As of June 28, 2013 and September 28, 2012, TIFSA had no commercial paper outstanding.
Credit Facilities
The Company's committed revolving credit facilities totaled $1.0 billion as of June 28, 2013. These revolving credit facilities may be used for working capital, capital expenditures and general corporate purposes. As of both June 28, 2013 and September 28, 2012, there were no amounts drawn under the Company's revolving credit facilities. Interest under the revolving credit facilities is variable and is calculated by reference to LIBOR or an alternate base rate.
10.    Financial Instruments
The Company's financial instruments consist primarily of cash and cash equivalents, accounts receivable, investments, accounts payable, debt and derivative financial instruments. The fair value of cash and cash equivalents, accounts receivable and accounts payable approximated book value as of June 28, 2013 and September 28, 2012. The fair value of derivative financial instruments was not material to any of the periods presented. See below for the fair value of investments and Note 9 for the fair value of debt.
Derivative Instruments
In the normal course of business, Tyco is exposed to market risk arising from changes in currency exchange rates, interest rates and commodity prices. The Company may use derivative financial instruments to manage exposures to foreign currency, interest rate and commodity risks. The Company's objective for utilizing derivative financial instruments is to manage these risks using the most effective methods to eliminate or reduce the impacts of these exposures. The Company does not use derivative financial instruments for trading or speculative purposes. As of and during the nine months ended June 28, 2013, the Company did not hold or enter into any commodity swaps or interest rate swaps.
For derivative instruments that are designated and qualified as hedging instruments for accounting purposes, the Company documents and links the relationships between the hedging instruments and hedged items. The Company also assesses and documents at the hedge's inception whether the derivatives used in hedging transactions are effective in offsetting changes in fair values associated with the hedged items. For the quarter and the nine months ended June 28, 2013, the Company did not have hedging instruments that were qualified for accounting purposes. For the quarter and the nine months ended June 29, 2012, the Company did have hedging instruments that were qualified for accounting purposes. These hedges did not result in any hedge ineffectiveness for the quarter and the nine months ended June 29, 2012.
All derivative financial instruments are reported on the Consolidated Balance Sheet at fair value with changes in the fair value of the derivative financial instruments recognized currently in the Company's Statement of Operations. The derivative financial instruments and impact of such changes in the fair value of the derivative financial instruments was not material to the Consolidated Balance Sheets as of June 28, 2013 and September 28, 2012 or Consolidated Statements of Operations, Consolidated Statements of Comprehensive Income (Loss) and Statement of Cash Flows for the quarter and the nine months ended June 28, 2013 and June 29, 2012.
Foreign Currency Exposures
The Company manages foreign currency exchange rate risk through the use of derivative financial instruments comprised principally of forward contracts on foreign currency which are not designated as hedging instruments for accounting purposes. The objective of the derivative instruments is to minimize the income statement impact and potential variability in cash flows associated with intercompany loans, accounts receivable, accounts payable and forecasted transactions that are denominated in certain foreign currencies. As of June 28, 2013 and September 28, 2012, the total gross notional amount of the Company's foreign exchange contracts was $285 million and $225 million, respectively.

20

TYCO INTERNATIONAL LTD.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


Counterparty Credit Risk
The use of derivative financial instruments exposes the Company to counterparty credit risk. If the counterparty fails to perform, the Company is exposed to losses if the derivative is in an asset position. When the fair value of a derivative instrument is an asset, the counterparty has to pay the Company to settle the contract. This exposes the Company to credit risk. However, when the fair value of a derivative instrument is a liability, the Company has to pay the counterparty to settle the contract and therefore there is no counterparty credit risk. Tyco has established policies and procedures to limit the potential for counterparty credit risk, including establishing limits for credit exposure and continually assessing the creditworthiness of counterparties. As a matter of practice, the Company deals with major banks worldwide having strong investment grade long-term credit ratings from Standard & Poor's and Moody's. To further reduce the risk of loss, the Company generally enters into International Swaps and Derivatives Association master agreements with substantially all of its counterparties. Master netting agreements provide protection in bankruptcy in certain circumstances and, in some cases, enable receivables and payables with the same counterparty to be offset on the Consolidated Balance Sheets, providing for a more meaningful balance sheet presentation of credit exposure. The Company's derivative contracts do not contain any credit risk related contingent features and do not require collateral or other security to be furnished by the Company or the counterparties.
The Company's exposure to credit risk associated with its derivative instruments is measured on an individual counterparty basis, as well as by groups of counterparties that share similar attributes. As of June 28, 2013, the Company was exposed to industry concentration with financial institutions as well as risk of loss if an individual counterparty or issuer failed to perform its obligations under contractual terms. The maximum amount of loss that the Company would incur as of June 28, 2013 without giving consideration to the effects of legally enforceable master netting agreements was approximately $2 million.
Fair Value of Financial Instruments
Authoritative guidance for fair value measurements establishes a three-level hierarchy that ranks the quality and reliability of information used in developing fair value estimates. The hierarchy gives the highest priority to quoted prices in active markets and the lowest priority to unobservable data. In cases where two or more levels of inputs are used to determine fair value, a financial instrument's level is determined based on the lowest level input that is considered significant to the fair value measurement in its entirety. The three levels of the fair value hierarchy are summarized as follows:
•
Level 1—inputs are based upon quoted prices (unadjusted) in active markets for identical assets or liabilities which are accessible as of the measurement date.
•
Level 2—inputs are based upon quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, and model-derived valuations for the asset or liability that are derived principally from or corroborated by market data for which the primary inputs are observable, including forward interest rates, yield curves, credit risk and exchange rates.
•
Level 3—inputs for the valuation models are unobservable and are based on management's estimates of assumptions that market participants would use in pricing the asset or liability. The fair values are therefore determined using model-based techniques such as option pricing models and discounted cash flow models.
Investments
Investments primarily include U.S. government obligations, U.S. government agency securities and corporate debt securities.
When available, the Company uses quoted market prices to determine the fair value of investment securities. Such investments are included in Level 1. When quoted market prices are not readily available, pricing determinations are made based on the results of market approach valuation models using observable market data such as recently reported trades, bid and offer information and benchmark securities. These investments are included in Level 2 and consist primarily of U.S. government agency securities and corporate debt securities.
Assets Measured at Fair Value on a Recurring Basis

21

TYCO INTERNATIONAL LTD.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


 
 
 
 
 
 
 
Consolidated Balance Sheet
Classification
 
As of June 28, 2013
 
Prepaids and
Other Current
Assets
 
Other Assets
($ in millions)
Level 1
 
Level 2
 
Total
 
Available-for-Sale Securities:
 
 
 
 
 
 
 
 
 
Corporate debt securities
$
—

 
$
34

 
$
34

 
$
11

 
$
23

U.S. Government debt securities
185

 
58

 
243

 
134

 
109

Total
$
185

 
$
92

 
$
277

 
$
145

 
$
132

 
 
 
 
 
 
 
Consolidated Balance Sheet
Classification
 
As of September 28, 2012
 
Prepaids and
Other Current
Assets
 
Other
Assets
($ in millions)
Level 1
 
Level 2
 
Total
 
Available-for-Sale Securities:
 
 
 
 
 
 
 
 
 
Corporate debt securities
$
—

 
$
34

 
$
34

 
$
7

 
$
27

U.S. Government debt securities
86

 
83

 
169

 
63

 
106

Total
$
86

 
$
117

 
$
203

 
$
70

 
$
133

During the quarter and the nine months ended June 28, 2013, the Company did not have any significant transfers between levels within the fair value hierarchy.
Other
The Company had $1.9 billion and $2.0 billion of intercompany loans designated as permanent in nature as of June 28, 2013 and September 28, 2012, respectively. For the quarters ended June 28, 2013 and June 29, 2012, the Company recorded $25 million of cumulative translation loss and $45 million of cumulative translation loss, respectively, through accumulated other comprehensive loss related to these loans.
For the nine months ended June 28, 2013 and June 29, 2012, the Company recorded $87 million of cumulative translation loss and $18 million of cumulative translation loss, respectively, through accumulated other comprehensive loss related to these loans.
11.    Commitments and Contingencies
Legacy Matters Related to Former Management
The Company is a party to several lawsuits involving disputes with former management, including its former chief executive officer, Mr. L. Dennis Kozlowski, and its former chief financial officer, Mr. Mark Swartz. The Company has filed civil complaints against Mr. Kozlowski and Mr. Swartz for breach of fiduciary duty and other wrongful conduct relating to alleged abuses of the Company's Key Employee Loan Program and relocation program, unauthorized bonuses, unauthorized payments, self dealing transactions and other improper conduct. In connection with Tyco's affirmative actions against Mr. Kozlowski and Mr. Swartz, Mr. Kozlowski, through counterclaims, and Mr. Swartz, through a separate lawsuit, sought an aggregate of approximately $140 million allegedly due in connection with their compensation and retention arrangements and under the Employee Retirement Income Security Act ("ERISA"). A former director, Mr. Frank Walsh Jr. sought indemnification for legal and other expenses incurred by him in connection with the Company's affirmative action against him for breaches of fiduciary duties.
With respect to Mr. Kozlowski, on December 1, 2010, the U.S. District Court for the Southern District of New York ruled in favor of several of the Company's affirmative claims against him before trial, while dismissing all of Mr. Kozlowski's counterclaims for pay and benefits after 1995. Prior to the commencement of trial scheduled for August 2012, the parties reached an agreement in principle to resolve the matter, with Mr. Kozlowski agreeing to release the Company from any claims to monetary amounts related to compensation, retention or other arrangements alleged to have existed between him and the Company. Although the parties have reached an agreement in principle, until the settlement agreement is signed, the Company will continue to maintain the amounts recorded in its Consolidated Balance Sheet, which reflect a net liability of approximately $91 million, for the amounts allegedly due under his compensation and retention arrangements and under ERISA.

22

TYCO INTERNATIONAL LTD.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


With respect to Mr. Swartz, on March 3, 2011, the U.S. District Court for the Southern District of New York granted the Company's motion for summary judgment as to liability for its affirmative actions and further ruled that issues related to damages would need to be resolved at trial. During the second quarter of fiscal 2012, the Company reversed a $50 million liability related to Mr. Swartz's pay and benefits due to the expiration of the statute of limitations, which was recorded in Selling, general and administrative expenses in the Consolidated Statement of Operations. On May 15, 2012, Mr. Swartz filed a lawsuit against Tyco in New York state court claiming entitlement to monies under ERISA. The Company removed the case to the U.S. District Court for the Southern District of New York and filed a motion to dismiss Mr. Swartz's claims for multiple reasons, including that the statute of limitations had expired, at the latest, during the second quarter of fiscal 2012. A trial to determine the Company's damages from Mr. Swartz's breaches of fiduciary duty concluded on October 17, 2012. At the conclusion of the trial, the Court ruled that the Company was entitled to recover all monies earned by Mr. Swartz in connection with his employment by Tyco between September 1, 1995 and June 1, 2002. The Company filed a motion requesting the entry of monetary sum certain judgment in conformity with the Court's ruling regarding the time period of disgorgement. The motion also requested interest related to the monies Mr. Swartz was found to have unlawfully taken from the Company. In March 2013, the Court entered an order awarding the Company's request for interest. In connection with Mr. Swartz's affirmative claims against the Company, the Court dismissed all of Mr. Swartz's claims except one claim in which Mr. Swartz contends he is entitled to reimbursement from the Company for taxes he paid in connection with his 2002 Separation Agreement. In July 2013, the parties reached an agreement in principle to resolve the matter, with Mr. Swartz agreeing to release the Company from any claims to monetary amounts related to compensation, retention or other arrangements alleged to have existed between him and the Company. Although the parties have reached an agreement in principle, a final settlement agreement has not yet been executed.
With respect to Mr. Walsh, in June 2002, the Company filed a civil complaint against him for breach of fiduciary duty, inducing breaches of fiduciary duty and related wrongful conduct involving a $20 million payment by Tyco, $10 million of which was paid to Mr. Walsh with the balance paid to a charity of which Mr. Walsh is trustee. The payment was purportedly made for Mr. Walsh's assistance in arranging the Company's acquisition of The CIT Group, Inc. In October 2010, the U.S. District Court for the Southern District of New York denied the Company's affirmative claims for recovery of damages against Mr. Walsh. In January 2012, the United States Court of Appeals for the Second Circuit reversed the District Court's ruling that Tyco's Board of Directors could ratify breaches of fiduciary duties owed by Mr. Walsh to Tyco's shareholders, and remanded the case to the District Court to resolve certain issues relating to consequential damages. On June 20, 2012, the District Court ruled in Tyco's favor and entered a judgment against Mr. Walsh. Separately, Mr. Walsh filed a New York state court claim against the Company asserting his entitlement to indemnification. In March 2013, Mr. Walsh and the Company entered into a settlement agreement resolving all claims they had against each other related to these lawsuits with no payments made by either party.
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 28, 2013, Tyco concluded that it was probable that it would incur remaining remediation and monitoring costs in the range of approximately $89 million to $176 million. As of June 28, 2013, Tyco concluded that the best estimate within this range is approximately $122 million, of which $69 million is included in Accrued and other current liabilities and $53 million is included in Other liabilities in the Company's Consolidated Balance Sheet.
The majority of the liabilities described above relate to ongoing remediation efforts at a facility in the Company's Global Products segment located in Marinette, Wisconsin, which the Company acquired in 1990 in connection with its acquisition of, among other things, the Ansul product line. Prior to Tyco's acquisition, Ansul manufactured arsenic-based agricultural herbicides at the Marinette facility, which resulted in significant arsenic contamination of soil and groundwater on the Marinette site and in parts of the adjoining Menominee River. Ansul has been engaged in ongoing remediation efforts at the Marinette site since 1990, and in February 2009 entered into an Administrative Consent Order (the "Consent Order") with the U.S. Environmental Protection Agency to address the presence of arsenic at the Marinette site. Under this agreement, Ansul's principal obligations are to contain the arsenic contamination on the site, pump and treat on-site groundwater, dredge, treat and properly dispose of contaminated sediments in the adjoining river areas, and monitor contamination levels on an ongoing basis. Activities completed under the Consent Order since 2009 include the installation of a subsurface barrier wall around the facility to contain contaminated groundwater, the installation of a groundwater extraction and treatment system and the dredging and offsite disposal of treated river sediment. As a result of treatability studies concluded during the second quarter of fiscal 2013, the Company became aware that additional river sediment beyond what was originally planned would require treatment by

23

TYCO INTERNATIONAL LTD.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


November 1, 2013, the deadline imposed under the Consent Order for river sediment remediation. This has caused the Company to increase its agreed upon remedial activities through the fall of 2013 in order to achieve compliance with the Consent Order. As a result of the increased level of remediation required, the Company recorded a charge of approximately $94 million during the second quarter of fiscal 2013 which it recorded in Selling, general and administrative expenses in the Consolidated Statement of Operations. As of June 28, 2013, the Company concluded that its remaining remediation and monitoring costs related to the Marinette facility were in the range of approximately $80 million to $155 million. The Company's best estimate within that range is approximately $111 million, of which $67 million is included in Accrued and other current liabilities and $44 million is included in Other liabilities in the Company's Consolidated Balance Sheet. During the quarter and nine months ended June 28, 2013, the Company recorded nil and $100 million, respectively, in Selling, general and administrative expenses in the Consolidated Statement of Operations. The Company recorded $13 million during both the quarter and nine months ended June 29, 2012 within Selling, general and administrative expenses in the Consolidated Statement of Operations. Since fiscal 2009, the year in which the Company received the Consent Order, the Company has incurred environmental remediation costs net of insurance recoveries of $132 million, of which $16 million were incurred during fiscal 2012. Although the Company has recorded its best estimate of the costs that it will incur to remediate and monitor the arsenic contamination at the Marinette facility, it is possible that technological, regulatory or enforcement developments, the results of environmental studies or other factors could change the Company's expectations with respect to future charges and cash outlays, and such changes could be material to the Company's future results of operations, financial condition or cash flows.
Asbestos Matters
The Company and certain of its subsidiaries along with numerous other companies are named as defendants in personal injury lawsuits based on alleged exposure to asbestos containing materials. These cases typically involve product liability claims based primarily on allegations of manufacture, sale or distribution of industrial products that either contained asbestos or were attached to or used with asbestos containing components manufactured by third parties. Each case typically names between dozens to hundreds of corporate defendants. While the Company has observed an increase in the number of these lawsuits over the past several years, including lawsuits by plaintiffs with mesothelioma related claims, a large percentage of these suits have not presented viable legal claims and, as a result, have been dismissed by the courts. The Company's historical strategy has been to mount a vigorous defense aimed at having unsubstantiated suits dismissed, and, where appropriate, settling suits before trial. Although a large percentage of litigated suits have been dismissed, the Company cannot predict the extent to which it will be successful in resolving lawsuits in the future. In addition, the Company continues to assess its strategy for resolving asbestos claims. Due to the number of claims and limited amount of assets held by Yarway Corporation ("Yarway"), one of the Company's indirect subsidiaries, on April 22, 2013 Yarway filed a voluntary petition for relief under Chapter 11 of the U.S. Bankruptcy Code in the United States Bankruptcy Court for the District of Delaware. As a result of this filing, all asbestos claims against Yarway have been stayed pending confirmation of a plan of reorganization by the Bankruptcy Court. Yarway's goal is to negotiate, obtain approval of, and consummate a plan of reorganization that establishes an appropriately funded trust to provide for the fair and equitable payment of legitimate current and future Yarway asbestos claims, accompanied by appropriate injunctive relief permanently protecting Yarway and certain other protected parties from any further asbestos claims arising from products manufactured, sold, and/or distributed by Yarway. Upon confirmation of such plan of reorganization, the Company expects to deconsolidate Yarway. As a result of filing the voluntary petition during the quarter, the Company recorded an expected loss upon deconsolidation of $10 million related to the Yarway bankruptcy petition. Although the terms of Yarway's plan of reorganization are unknown at this time, the Company does not expect them to have a material adverse effect on the Company's results of operations, financial condition or liquidity.
As of June 28, 2013, the Company has determined that there were approximately 5,400 claims pending against it, its subsidiaries or entities for which the Company has assumed responsibility in connection with acquisitions and divestitures. This amount reflects the Company's current estimate of the number of viable claims made against such entities and includes adjustments for claims that are not actively being prosecuted, identify incorrect defendants, are duplicative of other actions or for which the Company is indemnified.
The Company's estimate of its liability and corresponding insurance recovery for pending and future claims and defense costs is based on the Company's historical claim experience, and estimates of the number and resolution cost of potential future claims that may be filed. The Company's legal strategy for resolving claims also impacts these estimates. The Company considers various trends and developments in evaluating the period of time (the look-back period) over which historical claim and settlement experience is used to estimate and value claims reasonably projected to be made in the future during a defined period of time (the look-forward period). On a quarterly basis, Tyco assesses the sufficiency of its estimated liability for pending and future claims and defense costs by evaluating actual experience regarding claims filed, settled and dismissed, and

24

TYCO INTERNATIONAL LTD.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


amounts paid in settlements. In addition to claims and settlement experience, Tyco considers additional quantitative and qualitative factors such as changes in legislation, the legal environment, and the Company's defense strategy. Tyco also evaluates the recoverability of its insurance receivable on a quarterly basis. The Company evaluates all of these factors and determines whether a change in the estimate of its liability for pending and future claims and defense costs or insurance receivable is warranted.
During the third quarter of fiscal 2012, the Company determined that a look-back period of three years was more appropriate than a five year period because the Company had experienced a higher and more consistent level of claims activity and settlement costs in the past three years. As a result, the Company believes a three year look-back period is more representative of future claim and settlement activity than the five year period it previously used. The Company also revised its look-forward period from seven years to fifteen years. The Company's decision to revise its look- forward period was primarily based on improvements in the consistency of observable data and the Company's more extensive experience with asbestos claims since the look-forward period was originally established in 2005. The revisions to the Company's look-forward and look-back periods do not apply to claims made against Yarway. Excluding these claims, the Company believes it can make a more reliable estimate of pending and future claims beyond seven years. The Company believes valuation of pending claims and future claims to be filed over the next fifteen years produces a reasonable estimate of its asbestos liability, which it records in the unaudited consolidated financial statements on an undiscounted basis. The effect of the change in our look-back and look-forward periods reduced income from continuing operations before income taxes and net income by approximately $90 million and $55 million, respectively. In addition, the effect of the change increased the Company's basic and diluted loss from continuing operations by $0.12 per share and decreased the Company's basic and diluted net income by $0.12 per share.
The Company's estimate of asbestos related insurance recoveries represents estimated amounts due to the Company for previously paid and settled claims and the probable reimbursements relating to its estimated liability for pending and future claims. In determining the amount of insurance recoverable, the Company considers a number of factors, including available insurance, allocation methodologies, and the solvency and creditworthiness of insurers. During the fourth quarter of fiscal 2012, the Company reached an agreement with one of its primary insurance carriers for asbestos related claims. Under the terms of the settlement, the Company agreed with the insurance carrier to accept a lump sum cash payment of $97 million in respect of certain policies, and has reached a coverage-in-place agreement with the insurance carrier with respect to certain claims. Upon receipt of the payments from the insurance carrier in the first quarter of fiscal 2013, the Company terminated a cost-sharing agreement that it had entered into with an entity that it had acquired a business from several decades ago and as a result, has access to all of the insurance policies and is responsible for all liabilities arising from asbestos claims made against the subsidiary that was acquired.
As of June 28, 2013, the Company's estimated net liability of $176 million was recorded within the Company's Consolidated Balance Sheet as a liability for pending and future claims and related defense costs of $328 million, and separately as an asset for insurance recoveries of $152 million. The Company believes that its asbestos related liabilities and insurance related assets as of June 28, 2013 are appropriate. Similarly, as of September 28, 2012, the Company's estimated net liability of $155 million was recorded within the Company's Consolidated Balance Sheet as a liability for pending and future claims and related defense costs of $401 million, and separately as an asset for insurance recoveries of $246 million.
The net liabilities reflected in the Company's Consolidated Balance Sheet represent the Company's best estimates of probable losses for the look-forward periods described above. It is reasonably possible that losses will be incurred for claims made subsequent to such look-forward periods. However, due to the inherent uncertainty and lack of reliable trend data in predicting losses beyond 2027, the Company is unable to reasonably estimate the amount of losses beyond such date. With respect to claims made against Yarway, the Company is unable to reasonably estimate losses beyond what it has accrued because it is uncertain what the impact of Yarway's reorganization plan under Chapter 11 of the Bankruptcy Code will be on the Company. However, the Company does not expect the impact to be materially adverse to its financial condition, results of operations or liquidity.
The amounts recorded by the Company for asbestos-related liabilities and insurance-related assets are based on the Company's strategies for resolving its asbestos claims, currently available information, and a number of estimates and assumptions. Key variables and assumptions include the number and type of new claims that are filed each year, the average cost of resolution of claims, the resolution of coverage issues with insurance carriers, amount of insurance and the solvency risk with respect to the Company's insurance carriers. Many of these factors are closely linked, such that a change in one variable or assumption will impact one or more of the others, and no single variable or assumption predominately influences the determination of the Company's asbestos-related liabilities and insurance-related assets. Furthermore, predictions with respect to these variables are subject to greater uncertainty in the later portion of the projection period. Other factors that may affect the

25

TYCO INTERNATIONAL LTD.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


Company's liability and cash payments for asbestos-related matters include uncertainties surrounding the litigation process from jurisdiction to jurisdiction and from case to case, reforms of state or federal tort legislation and the applicability of insurance policies among subsidiaries. As a result, actual liabilities or insurance recoveries could be significantly higher or lower than those recorded if assumptions used in the Company's calculations vary significantly from actual results.
Compliance Matters
As previously reported in the Company's periodic filings, in the fourth fiscal quarter of 2012, the Company settled with the Department of Justice ("DOJ") and the SEC charges related to alleged improper payments made by the Company's subsidiaries and agents in recent years, and agreed to pay approximately $26 million in fines, disgorgement and prejudgment interest to the DOJ and SEC, which the Company had previously reserved in the fourth quarter of fiscal 2011. The Company paid the DOJ approximately $13 million in the first quarter of fiscal 2013 and paid approximately $13 million to the SEC in the third quarter of fiscal 2013.
Covidien and TE Connectivity agreed, in connection with the 2007 Separation, to cooperate with the Company in its responses regarding these matters, and agreed that liabilities primarily related to the former Healthcare and Electronics businesses of the Company would be assigned to Covidien and TE Connectivity, respectively. As a result, Covidien and TE Connectivity have agreed to contribute approximately $5 million and immaterial amounts, respectively, toward the aforementioned $26 million.
Tax Litigation
Tyco and its subsidiaries' income tax returns are examined periodically by various tax authorities. In connection with these examinations, tax authorities, including the IRS, have raised issues and proposed tax adjustments, in particular with respect to years preceding the 2007 Separation. The issues and proposed adjustments related to such years are generally subject to the sharing provisions of a tax sharing agreement entered in 2007 with Covidien and TE Connectivity (the "2007 Tax Sharing Agreement") under which Tyco, Covidien and TE Connectivity share 27%, 42% and 31%, respectively, of shared income tax liabilities that arise from adjustments made by tax authorities to Tyco's, Covidien's and TE Connectivity's U.S. and certain non-U.S. income tax returns. The costs and expenses associated with the management of these shared tax liabilities are generally shared equally among the parties. Tyco has previously disclosed that in connection with U.S. federal tax audits, the IRS has raised a number of issues and proposed tax adjustments for periods beginning with the 1997 tax year. Although Tyco has been able to resolve substantially all of the issues and adjustments proposed by the IRS for tax years through 2007, it has not been able to resolve matters related to the treatment of certain intercompany debt transactions during the period. As a result, on June 20, 2013, Tyco received Notices of Deficiency from the IRS asserting that several of Tyco's former U.S. subsidiaries owe additional taxes of $883.3 million plus penalties of $154 million based on audits of the 1997 through 2000 tax years of Tyco and its subsidiaries as they existed at that time. In addition, Tyco received Final Partnership Administrative Adjustments for certain U.S. partnerships owned by former U.S. subsidiaries with respect to which an additional tax deficiency of approximately $30 million is expected to be asserted. These amounts exclude interest and do not reflect the impact on subsequent periods if the IRS position described below is ultimately proved correct.
The IRS asserted in the Notices of Deficiency that substantially all of Tyco's intercompany debt originated during the 1997 - 2000 period should not be treated as debt for U.S. federal income tax purposes, and has disallowed interest and related deductions recognized on U.S. income tax returns totaling approximately $2.9 billion. Tyco strongly disagrees with the IRS position and has filed petitions with the U.S. Tax Court contesting the IRS proposed adjustments. Tyco believes that it has meritorious defenses for its tax filings, that the IRS positions with regard to these matters are inconsistent with the applicable tax laws and existing Treasury regulations, and that the previously reported taxes for the years in question are appropriate.
No payments with respect to these matters would be required until the dispute is definitively resolved, which, based on the experience of other companies, could take several years. Tyco believes that its income tax reserves and the liabilities recorded in the Consolidated Balance Sheet for the tax sharing agreements continue to be appropriate. However, the ultimate resolution of these matters, and the impact of that resolution, are uncertain and could have a material impact on Tyco's financial condition, results of operations and cash flows. In particular, if the IRS is successful in asserting its claim, it would have an adverse impact on interest deductions related to the same intercompany debt in subsequent time periods, totaling approximately $6.6 billion, which is expected to be disallowed by the IRS.
See Note 6 for additional information related to income tax matters
Other Matters

26

TYCO INTERNATIONAL LTD.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


During the third quarter of fiscal 2013, an adverse judgment was entered by the United States District Court for the District of Colorado regarding an insurance claim made on behalf of Sonitrol Corporation, a former subsidiary of the Company, for insurance coverage for damages arising from a burglary and fire occurring at a warehouse monitored by Sonitrol in December 2002. The judgment reversed the District Court's prior finding that Sonitrol's actions were not the type of conduct that was uninsurable based on public policy grounds. As a result, the Company reversed an insurance receivable of $26.5 million within Selling, general and administrative expenses in the Consolidated Statement of Operations during the quarter ended June 28, 2013. The Company is appealing the District Court's ruling to the United States Circuit Court for the Tenth Circuit and will retry the underlying damages action against Sonitrol in Colorado state court.
In addition to the foregoing, the Company is subject to claims and suits, including from time to time, contractual disputes and product and general liability claims, incidental to present and former operations, acquisitions and dispositions. With respect to many of these claims, the Company either self-insures or maintains insurance through third-parties, with varying deductibles. While the ultimate outcome of these matters cannot be predicted with certainty, the Company believes that the resolution of any such proceedings, whether the underlying claims are covered by insurance or not, will not have a material adverse effect on the Company's financial condition, results of operations or cash flows beyond amounts recorded for such matters.
12.    Retirement Plans
Defined Benefit Pension Plans—The Company sponsors a number of pension plans. The following disclosures exclude the impact of plans which are immaterial individually and in the aggregate. The net periodic benefit cost for the Company's material U.S. and non-U.S. defined benefit pension plans is as follows ($ in millions):
 
U.S. Plans
 
For the Quarters Ended
 
For the Nine Months Ended
 
June 28, 2013

 
June 29, 2012

 
June 28, 2013

 
June 29, 2012

Service cost
$
1

 
$
2

 
$
4

 
$
4

Interest cost
8

 
9

 
24

 
27

Expected return on plan assets
(12
)
 
(10
)
 
(36
)
 
(31
)
Amortization of net actuarial loss
4

 
3

 
11

 
9

Net periodic benefit cost
$
1

 
$
4

 
$
3

 
$
9

 
 
Non-U.S. Plans
 
For the Quarters Ended
 
For the Nine Months Ended
 
June 28, 2013

 
June 29, 2012

 
June 28, 2013

 
June 29, 2012

Service cost
$
5

 
$
4

 
$
14

 
$
11

Interest cost
13

 
14

 
39

 
41

Expected return on plan assets
(18
)
 
(15
)
 
(52
)
 
(45
)
Amortization of net actuarial loss
3

 
1

 
9

 
6

Net periodic benefit cost
$
3

 
$
4

 
$
10

 
$
13

The estimated net actuarial loss for U.S. pension benefit plans that will be amortized from accumulated other comprehensive income (loss) into net periodic benefit cost over the current fiscal year is expected to be $14 million. The estimated net actuarial loss for non-U.S. pension benefit plans that will be amortized from accumulated other comprehensive income (loss) into net periodic benefit cost over the current fiscal year is expected to be $12 million.
The Company's funding policy is to make contributions in accordance with the laws and customs of the various countries in which it operates and to make discretionary voluntary contributions from time-to-time. The Company anticipates that it will contribute at least the minimum required to its pension plans in fiscal year 2013 of $11 million for U.S. plans and $50 million for non-U.S. plans. During the quarter ended June 28, 2013, the Company made required contributions of $3 million to its U.S. pension plans and $10 million to its non-U.S. pension plans. During the nine months ended June 28, 2013,

27

TYCO INTERNATIONAL LTD.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


the Company made required contributions of $5 million to its U.S. pension plans and $36 million to its non-U.S. pension plans.
Postretirement Benefit Plans—Net periodic postretirement benefit cost was not material for both periods.
13.    Share Plans
During the quarter ended December 28, 2012, the Company issued its annual share-based compensation grants. The total number of awards issued was approximately 4.2 million, of which 2.6 million were stock options, 0.7 million were restricted unit awards and 0.9 million were performance share unit awards. The options and restricted stock units vest in equal annual installments over a period of 4 years, and the performance share unit awards vest after a period of 3 years based on the level of attainment of the applicable performance metrics, which are determined by the Compensation and Human Resources Committee of the Board. The weighted-average grant-date fair value of the stock options, restricted unit awards and performance share unit awards was $7.16, $27.14 and $30.36, respectively. The weighted-average assumptions used in the Black-Scholes option pricing model included an expected stock price volatility of 35%, a risk free interest rate of 0.86%, an expected annual dividend per share of $0.60 and an expected option life of 5.7 years.
In addition to the annual grant and in connection with the Separation, the Compensation and Human Resources Committee of the Board awarded as a one-time event Leadership Grants to selected employees in order to strengthen the alignment of the new senior management team with the shareholders of the post-Separation Company and to enhance employee retention. The total number of leadership awards issued was approximately 1.9 million, of which 1.5 million were stock options and 0.4 million were restricted unit awards. The options vest after a period of 3 years and restricted stock units vest in equal installments on the third and fourth anniversary of the grant date. The weighted-average grant-date fair value of the stock options and restricted unit awards was $7.20 and $27.14, respectively. The weighted-average assumptions used in the Black-Scholes option pricing model included an expected stock price volatility of 35%, a risk free interest rate of 0.87%, an expected annual dividend per share of $0.60 and an expected option life of 5.8 years.
14.    Equity and Comprehensive Income
Dividends
Under Swiss law, the authority to declare dividends is vested in the general meeting of shareholders, and on March 6, 2013, the Company's shareholders approved a cash dividend of $0.64 per share, payable to shareholders in four quarterly installments of $0.16 in May 2013, August 2013, November 2013 and February 2014. As a result, during the quarter ended March 29, 2013, the Company recorded an accrued dividend of $296 million within Accrued and other current liabilities and a corresponding reduction to Contributed surplus on the Company's Consolidated Balance Sheet. The first installment of $0.16 was paid on May 22, 2013 to shareholders of record on April 26, 2013.
On September 17, 2012, the Company's shareholders approved a $0.30 per share dividend, payable to shareholders in two quarterly installments of $0.15. As a result, the Company recorded an accrued dividend of $139 million as of September 17, 2012 within Accrued and other current liabilities and a corresponding reduction to Contributed surplus on the Company's Consolidated Balance Sheet. The first installment of $0.15 was paid on November 15, 2012 to shareholders of record on October 16, 2012. The second installment of $0.15 was paid on February 20, 2013 to shareholders of record on January 25, 2013.
Share Repurchase Program
On January 29, 2013, the Company announced that its Board of Directors approved $600 million in share repurchase authority ("2013 Share Repurchase Program") in addition to the $1.0 billion share repurchase program that its Board of Directors approved in April 2011 ("2011 Share Repurchase Program"). During the nine months ended June 28, 2013, the Company repurchased approximately 10 million shares for approximately $300 million. As of June 28, 2013, the Company completed the 2011 Share Repurchase Program and approximately $500 million of share repurchase authority remained outstanding under the 2013 Share Repurchase Program.
Common Shares
On March 6, 2013, shareholders of the Company approved a reduction of the Company's registered share capital from CHF 3,258,632,435 to CHF 243,181,525 by reducing the par value of each share from CHF 6.70 to CHF 0.50 per share and

28

TYCO INTERNATIONAL LTD.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


correspondingly increasing the Company's contributed surplus by CHF 3,015,450,910. The reduction in registered share capital and corresponding increase in contributed surplus is intended to provide the Company with more flexibility in making distributions to shareholders. On May 13, 2013, the notice period required in accordance with Swiss law expired, and the amendment to the Company's Articles of Association was filed with the Swiss Commercial Register on May 16, 2013. As a result, the reduction in registered share capital and corresponding increase in contributed surplus, which did not result in any changes to total Shareholders' Equity, was recorded during the quarter ended June 28, 2013.
Comprehensive Income
 
For the Quarters Ended
 
For the Nine Months Ended
 
June 28,
2013
 
June 29,
2012
 
June 28,
2013
 
June 29,
2012
Net income
$
135

 
$
245

 
$
370

 
$
890

Foreign currency translation
(135
)
 
(285
)
 
(209
)
 
(165
)
Liquidation of foreign entities
1

 
—

 
(9
)
 
—

Income tax expense
—

 
—

 
(7
)
 
(1
)
Foreign currency translation, net of tax
(134
)
 
(285
)
 
(225
)
 
(166
)
Amortization of net actuarial losses
7

 
6

 
20

 
17

Income tax expense
(2
)
 
(2
)
 
(6
)
 
(6
)
Defined benefit and post retirement plans, net of tax
5

 
4

 
14

 
11

Unrealized loss on marketable securities and derivative instruments
(2
)
 
(1
)
 
(3
)
 
(2
)
Income tax benefit
1

 
—

 
3

 
3

Unrealized (loss) gain on marketable securities and derivative instruments, net of tax
(1
)
 
(1
)
 
—

 
1

Total other comprehensive loss, net of tax
(130
)
 
(282
)
 
(211
)
 
(154
)
Comprehensive income (loss)
5

 
(37
)
 
159

 
736

Less: comprehensive loss attributable to noncontrolling interests
—

 
(1
)
 
—

 
(1
)
Comprehensive income (loss) attributable to Tyco common shareholders
$
5

 
$
(36
)
 
$
159

 
$
737

15.    Consolidated Segment Data
Segment information is consistent with how management reviews the businesses, makes investing and resource allocation decisions and assesses operating performance. The Company, from time to time, may realign business and management responsibility within its operating segments based on considerations such as opportunity for market or operating synergies and/or to more fully leverage existing capabilities and enhance development for future products and services.
In connection with the 2012 Separation, the Company realigned its management and segment reporting structure beginning in the fourth quarter of fiscal 2012. The Company operates and reports financial and operating information in the following three segments:
•
NA Installation & Services designs, sells, installs, services and monitors electronic security systems and fire detection and suppression systems for commercial, industrial, retail, institutional and governmental customers in North America.
•
ROW Installation & Services designs, sells, installs, services and monitors electronic security systems and fire detection and suppression systems for commercial, industrial, retail, residential, small business, institutional and governmental customers in the Rest of World ("ROW") regions.
•
Global Products designs, manufactures and sells fire protection, security and life safety products, including intrusion security, anti-theft devices, breathing apparatus and access control and video management systems, for

29

TYCO INTERNATIONAL LTD.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


commercial, industrial, retail, residential, small business, institutional and governmental customers worldwide, including products installed and serviced by our NA and ROW Installation & Services segments.
The Company also provides general corporate services to its segments which is reported as a fourth, non-operating segment, Corporate and Other.
As a result of the 2012 Separation, net revenue and operating income for the quarter and the nine months ended June 29, 2012 have been recast for the new segment structure. Selected information by segment is presented in the following tables ($ in millions):
 
For the
Quarters Ended
 
For the
Nine Months Ended
 
June 28, 2013
 
June 29, 2012
 
June 28, 2013
 
June 29, 2012
Net revenue(1):
 
 
 
 
 
 
 
NA Installation & Services
$
966

 
$
1,005

 
$
2,895

 
$
2,920

ROW Installation & Services
1,112

 
1,087

 
3,279

 
3,213

Global Products
600

 
563

 
1,712

 
1,542

Net revenue
$
2,678

 
$
2,655

 
$
7,886

 
$
7,675

_______________________________________________________________________________

(1) 
Net revenue by operating segment excludes intercompany transactions.
 
For the
Quarters Ended
 
For the
Nine Months Ended
 
June 28, 2013
 
June 29, 2012
 
June 28, 2013
 
June 29, 2012
Operating income (loss):
 
 
 
 
 
 
 
NA Installation & Services
$
88

 
$
94

 
$
275

 
$
265

ROW Installation & Services
104

 
118

 
323

 
333

Global Products
114

 
98

 
188

 
265

Corporate and Other
(117
)
 
(192
)
 
(239
)
 
(331
)
Operating income
$
189

 
$
118

 
$
547

 
$
532

16.    Inventory
Inventories consisted of the following ($ in millions):
 
As of
 
June 28,
2013
 
September 28,
2012
Purchased materials and manufactured parts
$
161

 
$
135

Work in process
81

 
80

Finished goods
443

 
419

Inventories
$
685

 
$
634

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

30

TYCO INTERNATIONAL LTD.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


17.    Property, Plant and Equipment
Property, plant and equipment consisted of the following ($ in millions):
 
As of
 
June 28,
2013

 
September 28,
2012

Land
$
42

 
$
44

Buildings
384

 
358

Subscriber systems
2,994

 
3,063

Machinery and equipment
1,201

 
1,158

Construction in progress
80

 
102

Accumulated depreciation
(3,061
)
 
(3,055
)
Property, Plant and Equipment, net
$
1,640

 
$
1,670

18.    Guarantees
Certain of the Company's business segments have guaranteed the performance of third-parties and provided financial guarantees for uncompleted work and financial commitments. The terms of these guarantees vary with end dates ranging from the current fiscal year through the completion of such transactions. The guarantees would typically be triggered in the event of nonperformance and we believe that performance under the guarantees, if required, would not have a material effect on the Company's financial position, results of operations or cash flows.
There are certain guarantees or indemnifications extended among Tyco, Covidien, TE Connectivity, ADT and Pentair in accordance with the terms of the 2007 and 2012 Separation and Distribution Agreements and Tax Sharing Agreements. These guarantees primarily relate to certain contingent tax liabilities included in the Tax Sharing Agreements. See Note 6.
In addition, Tyco historically provided support in the form of financial and/or performance guarantees to various Covidien, TE Connectivity, ADT and Tyco Flow Control operating entities. In connection with both the 2012 and 2007 Separations, the Company worked with the guarantee counterparties to cancel or assign these guarantees to Covidien, TE Connectivity, ADT or Pentair, as appropriate. To the extent these guarantees were not assigned prior to the Separation dates, Tyco remained as the guarantor, but was typically indemnified by the former subsidiary. The Company's obligations related to the 2012 Separation were $3 million, which were included in Other liabilities on the Company's Consolidated Balance Sheets as of both June 28, 2013 and September 28, 2012, with an offset to Tyco's shareholders' equity on the 2012 Separation date. The Company's obligations related to the 2007 Separation were $3 million, which were included in Other liabilities on the Company's Consolidated Balance Sheets as of both June 28, 2013 and September 28, 2012, with an offset to Tyco's shareholders' equity on the 2007 Separation date.
In disposing of assets or businesses, the Company often provides representations, warranties and/or indemnities to cover various risks including, for example, unknown damage to the assets, environmental risks involved in the sale of real estate, liability to investigate and remediate environmental contamination at waste disposal sites and manufacturing facilities and unidentified tax liabilities and legal fees related to periods prior to disposition. The Company has no reason to believe that these contingencies, if realized, 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 11.

31

TYCO INTERNATIONAL LTD.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


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.

Balance as of September 28, 2012
$
30

Warranties issued
11

Changes in estimates
(2
)
Settlements
(9
)
Currency translation
$
(1
)
Balance as of June 28, 2013
$
29


32

TYCO INTERNATIONAL LTD.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


19.    Tyco International Finance S.A.
TIFSA, a wholly-owned subsidiary of the Company, has public debt securities outstanding which are fully and unconditionally guaranteed by Tyco. The following tables present condensed consolidating financial information for Tyco, TIFSA and all other subsidiaries. Condensed financial information for Tyco and TIFSA on a stand-alone basis is presented using the equity method of accounting for subsidiaries.
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
For the Quarter Ended June 28, 2013
($ in millions)
 
Tyco
International
Ltd.
 
Tyco
International
Finance S.A.
 
Other
Subsidiaries
 
Consolidating
Adjustments
 
Total
Net revenue
$
—

 
$
—

 
$
2,678

 
$
—

 
$
2,678

Cost of product sales and services
—

 
—

 
1,695

 
—

 
1,695

Selling, general and administrative expenses
2

 
1

 
734

 
—

 
737

Separation costs
—

 
—

 
4

 
—

 
4

Restructuring and asset impairment charges, net
—

 
—

 
53

 
—

 
53

Operating (loss) income
(2
)
 
(1
)
 
192

 
—

 
189

Interest income
2

 
—

 
4

 
—

 
6

Interest expense
(1
)
 
(24
)
 
(1
)
 
—

 
(26
)
Other expense, net
(1
)
 
—

 
—

 
—

 
(1
)
Equity in net income of subsidiaries
160

 
120

 
—

 
(280
)
 
—

Intercompany interest and fees
(23
)
 
3

 
20

 
—

 
—

Income from continuing operations before income taxes
135

 
98

 
215

 
(280
)
 
168

Income tax expense
—

 
(2
)
 
(28
)
 
—

 
(30
)
Equity loss in earnings of unconsolidated subsidiaries
—

 
—

 
(6
)
 
—

 
(6
)
Income from continuing operations
135

 
96

 
181

 
(280
)
 
132

Income from discontinued operations, net of income taxes
—

 
—

 
3

 
—

 
3

Net income
135

 
96

 
184

 
(280
)
 
135

Less: noncontrolling interest in subsidiaries net income
—

 
—

 
—

 
—

 
—

Net income attributable to Tyco common shareholders
$
135

 
$
96

 
$
184

 
$
(280
)
 
$
135



33

TYCO INTERNATIONAL LTD.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME
For the Quarter Ended June 28, 2013
(in millions)
 
Tyco
International
Ltd.
 
Tyco
International
Finance S.A.
 
Other
Subsidiaries
 
Consolidating
Adjustments
 
Total
Net income
$
135

 
$
96

 
$
184

 
$
(280
)
 
$
135

Other comprehensive (loss) income, net of tax
 
 
 
 
 
 
 
 
 
Foreign currency translation
(134
)
 
—

 
(134
)
 
134

 
(134
)
Defined benefit and post retirement plans
5

 
—

 
5

 
(5
)
 
5

Unrealized loss on marketable securities and derivative instruments
(1
)
 
—

 
(1
)
 
1

 
(1
)
Total other comprehensive loss, net of tax
(130
)
 
—

 
(130
)
 
130

 
(130
)
Comprehensive income
5

 
96

 
54

 
(150
)
 
5

Less: comprehensive income attributable to noncontrolling interests
—

 
—

 
—

 
—

 
—

Comprehensive income attributable to Tyco common shareholders
$
5

 
$
96

 
$
54

 
$
(150
)
 
$
5



34

TYCO INTERNATIONAL LTD.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
For the Quarter Ended June 29, 2012
($ in millions)
 
Tyco
International
Ltd.
 
Tyco
International
Finance S.A.
 
Other
Subsidiaries
 
Consolidating
Adjustments
 
Total
Net revenue
$
—

 
$
—

 
$
2,655

 
$
—

 
$
2,655

Cost of product sales and services
—

 
—

 
1,685

 
—

 
1,685

Selling, general and administrative expenses
4

 
1

 
824

 
—

 
829

Separation costs
2

 
1

 
3

 
—

 
6

Restructuring and asset impairment charges, net
—

 
—

 
17

 
—

 
17

Operating (loss) income
(6
)
 
(2
)
 
126

 
—

 
118

Interest income
—

 
—

 
5

 
—

 
5

Interest expense
—

 
(57
)
 
(2
)
 
—

 
(59
)
Other income, net
1

 
—

 
—

 
—

 
1

Equity in net income of subsidiaries
169

 
261

 
—

 
(430
)
 
—

Intercompany interest and fees
83

 
41

 
(118
)
 
(6
)
 
—

Income from continuing operations before income taxes
247

 
243

 
11

 
(436
)
 
65

Income tax (expense) benefit
(1
)
 
7

 
—

 
—

 
6

Equity loss in earnings of unconsolidated subsidiaries
—

 
—

 
(7
)
 
—

 
(7
)
Income from continuing operations
246

 
250

 
4

 
(436
)
 
64

Income from discontinued operations, net of income taxes
—

 
—

 
175

 
6

 
181

Net income
246

 
250

 
179

 
(430
)
 
245

Less: noncontrolling interest in subsidiaries net loss
—

 
—

 
(1
)
 
—

 
(1
)
Net income attributable to Tyco common shareholders
$
246

 
$
250

 
$
180

 
$
(430
)
 
$
246



35

TYCO INTERNATIONAL LTD.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME
For the Quarter Ended June 29, 2012
(in millions)
 
Tyco
International
Ltd.
 
Tyco
International
Finance S.A.
 
Other
Subsidiaries
 
Consolidating
Adjustments
 
Total
Net income
$
246

 
$
250

 
$
179

 
$
(430
)
 
$
245

Other comprehensive (loss) income, net of tax
 
 
 
 
 
 
 
 
 
Foreign currency translation
(285
)
 
(7
)
 
(278
)
 
285

 
(285
)
Defined benefit and post retirement plans
4

 
—

 
4

 
(4
)
 
4

Unrealized loss on marketable securities and derivative instruments
(1
)
 
—

 
(1
)
 
1

 
(1
)
Total other comprehensive loss, net of tax
(282
)
 
(7
)
 
(275
)
 
282

 
(282
)
Comprehensive (loss) income
(36
)
 
243

 
(96
)
 
(148
)
 
(37
)
Less: comprehensive loss attributable to noncontrolling interests
—

 
—

 
(1
)
 
—

 
(1
)
Comprehensive (loss) income attributable to Tyco common shareholders
$
(36
)
 
$
243

 
$
(95
)
 
$
(148
)
 
$
(36
)


36

TYCO INTERNATIONAL LTD.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
For the Nine Months Ended June 28, 2013
($ in millions)
 
Tyco
International
Ltd.
 
Tyco
International
Finance S.A.
 
Other
Subsidiaries
 
Consolidating
Adjustments
 
Total
Net revenue
$
—

 
$
—

 
$
7,886

 
$
—

 
$
7,886

Cost of product sales and services
—

 
—

 
5,036

 
—

 
5,036

Selling, general and administrative expenses
9

 
2

 
2,198

 
—

 
2,209

Separation costs
4

 
—

 
5

 
—

 
9

Restructuring and asset impairment charges, net
—

 
—

 
85

 
—

 
85

Operating (loss) income
(13
)
 
(2
)
 
562

 
—

 
547

Interest income
2

 
—

 
12

 
—

 
14

Interest expense
(1
)
 
(71
)
 
(3
)
 
—

 
(75
)
Other (expense) income, net
(31
)
 
—

 
1

 
—

 
(30
)
Equity in net income of subsidiaries
625

 
393

 
—

 
(1,018
)
 
—

Intercompany interest and fees
(212
)
 
100

 
112

 
—

 
—

Income from continuing operations before income taxes
370

 
420

 
684

 
(1,018
)
 
456

Income tax expense
—

 
(2
)
 
(71
)
 
—

 
(73
)
Equity loss in earnings of unconsolidated subsidiaries
—

 
—

 
(18
)
 
—

 
(18
)
Income from continuing operations
370

 
418

 
595

 
(1,018
)
 
365

Income from discontinued operations, net of income taxes
—

 
—

 
5

 
—

 
5

Net income
370

 
418

 
600

 
(1,018
)
 
370

Less: noncontrolling interest in subsidiaries net income
—

 
—

 
—

 
—

 
—

Net income attributable to Tyco common shareholders
$
370

 
$
418

 
$
600

 
$
(1,018
)
 
$
370



37

TYCO INTERNATIONAL LTD.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME
For the Nine Months Ended June 28, 2013
(in millions)
 
Tyco
International
Ltd.
 
Tyco
International
Finance S.A.
 
Other
Subsidiaries
 
Consolidating
Adjustments
 
Total
Net income
$
370

 
$
418

 
$
600

 
$
(1,018
)
 
$
370

Other comprehensive (loss) income, net of tax
 
 
 
 
 
 
 
 
 
Foreign currency translation
(225
)
 
—

 
(225
)
 
225

 
(225
)
Defined benefit and post retirement plans
14

 
—

 
14

 
(14
)
 
14

Unrealized gain on marketable securities and derivative instruments
—

 
—

 
—

 
—

 
—

Total other comprehensive loss, net of tax
(211
)
 
—

 
(211
)
 
211

 
(211
)
Comprehensive income
159

 
418

 
389

 
(807
)
 
159

Less: comprehensive income attributable to noncontrolling interests
—

 
—

 
—

 
—

 
—

Comprehensive income attributable to Tyco common shareholders
$
159

 
$
418

 
$
389

 
$
(807
)
 
$
159



38

TYCO INTERNATIONAL LTD.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
For the Nine Months Ended June 29, 2012
($ in millions)
 
Tyco
International
Ltd.
 
Tyco
International
Finance S.A.
 
Other
Subsidiaries
 
Consolidating
Adjustments
 
Total
Net revenue
$
—

 
$
—

 
$
7,675

 
$
—

 
$
7,675

Cost of product sales and services
—

 
—

 
4,898

 
—

 
4,898

Selling, general and administrative expenses
11

 
3

 
2,152

 
—

 
2,166

Separation costs
2

 
1

 
7

 
—

 
10

Restructuring and asset impairment charges, net
1

 
—

 
68

 
—

 
69

Operating (loss) income
(14
)
 
(4
)
 
550

 
—

 
532

Interest income
—

 
—

 
14

 
—

 
14

Interest expense
—

 
(173
)
 
(3
)
 
—

 
(176
)
Other (expense) income, net
(3
)
 
—

 
2

 
—

 
(1
)
Equity in net income of subsidiaries
1,064

 
791

 
—

 
(1,855
)
 
—

Intercompany interest and fees
(164
)
 
216

 
(31
)
 
(21
)
 
—

Income from continuing operations before income taxes
883

 
830

 
532

 
(1,876
)
 
369

Income tax expense
—

 
(7
)
 
(47
)
 
—

 
(54
)
Equity loss in earnings of unconsolidated subsidiaries
—

 
—

 
(19
)
 
—

 
(19
)
Income from continuing operations
883

 
823

 
466

 
(1,876
)
 
296

Income from discontinued operations, net of income taxes
8

 
—

 
565

 
21

 
594

Net income
891

 
823

 
1,031

 
(1,855
)
 
890

Less: noncontrolling interest in subsidiaries net loss
—

 
—

 
(1
)
 
—

 
(1
)
Net income attributable to Tyco common shareholders
$
891

 
$
823

 
$
1,032

 
$
(1,855
)
 
$
891




39

TYCO INTERNATIONAL LTD.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME
For the Nine Months Ended June 29, 2012
(in millions)
 
Tyco
International
Ltd.
 
Tyco
International
Finance S.A.
 
Other
Subsidiaries
 
Consolidating
Adjustments
 
Total
Net income
$
891

 
$
823

 
$
1,031

 
$
(1,855
)
 
$
890

Other comprehensive income (loss), net of tax
 
 
 
 
 
 
 
 
 
Foreign currency translation
(166
)
 
(9
)
 
(157
)
 
166

 
(166
)
Defined benefit and post retirement plans
11

 
—

 
11

 
(11
)
 
11

Unrealized gain on marketable securities and derivative instruments
1

 
—

 
1

 
(1
)
 
1

Total other comprehensive loss, net of tax
(154
)
 
(9
)
 
(145
)
 
154

 
(154
)
Comprehensive income
737

 
814

 
886

 
(1,701
)
 
736

Less: comprehensive loss attributable to noncontrolling interests
—

 
—

 
(1
)
 
—

 
(1
)
Comprehensive income attributable to Tyco common shareholders
$
737

 
$
814

 
$
887

 
$
(1,701
)
 
$
737



40

TYCO INTERNATIONAL LTD.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


CONDENSED CONSOLIDATING BALANCE SHEET
As of June 28, 2013
($ in millions)
 
Tyco
International
Ltd.
 
Tyco
International
Finance S.A.
 
Other
Subsidiaries
 
Consolidating
Adjustments
 
Total
Assets
 
 
 
 
 
 
 
 
 
Current Assets:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
—

 
$
—

 
$
455

 
$
—

 
$
455

Accounts receivable, net
—

 
—

 
1,678

 
—

 
1,678

Inventories
—

 
—

 
685

 
—

 
685

Intercompany receivables
1,308

 
2,055

 
8,929

 
(12,292
)
 
—

Prepaid expenses and other current assets
3

 
—

 
851

 
—

 
854

Deferred income taxes
—

 
—

 
295

 
—

 
295

Total current assets
1,311

 
2,055

 
12,893

 
(12,292
)
 
3,967

Property, plant and equipment, net
—

 
—

 
1,640

 
—

 
1,640

Goodwill
—

 
—

 
4,322

 
—

 
4,322

Intangible assets, net
—

 
—

 
716

 
—

 
716

Investment in subsidiaries
25,891

 
12,680

 
—

 
(38,571
)
 
—

Intercompany loans receivable
1,921

 
5,339

 
19,977

 
(27,237
)
 
—

Other assets
71

 
6

 
1,148

 
—

 
1,225

Total Assets
$
29,194

 
$
20,080

 
$
40,696

 
$
(78,100
)
 
$
11,870

Liabilities and Equity
 
 
 
 
 
 
 
 
 
Current Liabilities:
 
 
 
 
 
 
 
 
 
Loans payable and current maturities of long-term debt
$
—

 
$
—

 
$
19

 
$
—

 
$
19

Accounts payable
—

 
—

 
831

 
—

 
831

Accrued and other current liabilities
394

 
33

 
1,446

 
—

 
1,873

Deferred revenue
—

 
—

 
417

 
—

 
417

Intercompany payables
3,698

 
5,243

 
3,351

 
(12,292
)
 
—

Total current liabilities
4,092

 
5,276

 
6,064

 
(12,292
)
 
3,140

Long-term debt
—

 
1,443

 
19

 
—

 
1,462

Intercompany loans payable
20,067

 
3,076

 
4,094

 
(27,237
)
 
—

Deferred revenue
—

 
—

 
396

 
—

 
396

Other liabilities
328

 
—

 
1,810

 
—

 
2,138

Total Liabilities
24,487

 
9,795

 
12,383

 
(39,529
)
 
7,136

Redeemable noncontrolling interest
—

 
—

 
12

 
—

 
12

Tyco Shareholders' Equity:
 
 
 
 
 
 
 
 
 
Common shares
208

 
—

 
—

 
—

 
208

Common shares held in treasury
—

 
—

 
(970
)
 
—

 
(970
)
Other shareholders' equity
4,499

 
10,285

 
29,256

 
(38,571
)
 
5,469

Total Tyco Shareholders' Equity
4,707

 
10,285

 
28,286

 
(38,571
)
 
4,707

Nonredeemable noncontrolling interest
—

 
—

 
15

 
—

 
15

Total Equity
4,707

 
10,285

 
28,301

 
(38,571
)
 
4,722

Total Liabilities, Redeemable Noncontrolling Interest and Equity
$
29,194

 
$
20,080

 
$
40,696

 
$
(78,100
)
 
$
11,870



41

TYCO INTERNATIONAL LTD.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


CONDENSED CONSOLIDATING BALANCE SHEET
As of September 28, 2012
($ in millions)
 
Tyco
International
Ltd.
 
Tyco
International
Finance S.A.
 
Other
Subsidiaries
 
Consolidating
Adjustments
 
Total
Assets
 
 
 
 
 
 
 
 
 
Current Assets:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
—

 
$
—

 
$
844

 
$
—

 
$
844

Accounts receivable, net
7

 
—

 
1,689

 
—

 
1,696

Inventories
—

 
—

 
634

 
—

 
634

Intercompany receivables
1,220

 
1,890

 
10,361

 
(13,471
)
 
—

Prepaid expenses and other current assets
14

 
—

 
870

 
—

 
884

Deferred income taxes
—

 
—

 
295

 
—

 
295

Total current assets
1,241

 
1,890

 
14,693

 
(13,471
)
 
4,353

Property, plant and equipment, net
—

 
—

 
1,670

 
—

 
1,670

Goodwill
—

 
—

 
4,367

 
—

 
4,367

Intangible assets, net
—

 
—

 
771

 
—

 
771

Investment in subsidiaries
25,666

 
12,274

 
—

 
(37,940
)
 
—

Intercompany loans receivable
1,921

 
7,031

 
19,956

 
(28,908
)
 
—

Other assets
67

 
260

 
877

 
—

 
1,204

Total Assets
$
28,895

 
$
21,455

 
$
42,334

 
$
(80,319
)
 
$
12,365

Liabilities and Equity
 
 
 
 
 
 
 
 
 
Current Liabilities:
 
 
 
 
 
 
 
 
 
Loans payable and current maturities of long-term debt
$
—

 
$
—

 
$
10

 
$
—

 
$
10

Accounts payable
—

 
—

 
897

 
—

 
897

Accrued and other current liabilities
187

 
23

 
1,578

 
—

 
1,788

Deferred revenue
—

 
—

 
402

 
—

 
402

Intercompany payables
3,571

 
6,793

 
3,107

 
(13,471
)
 
—

Total current liabilities
3,758

 
6,816

 
5,994

 
(13,471
)
 
3,097

Long-term debt
—

 
1,443

 
38

 
—

 
1,481

Intercompany loans payable
19,672

 
3,055

 
6,181

 
(28,908
)
 
—

Deferred revenue
—

 
—

 
424

 
—

 
424

Other liabilities
471

 
—

 
1,870

 
—

 
2,341

Total Liabilities
23,901

 
11,314

 
14,507

 
(42,379
)
 
7,343

Redeemable noncontrolling interest
—

 
—

 
12

 
—

 
12

Tyco Shareholders' Equity:
 
 
 
 
 
 
 
 
 
Common shares
2,792

 
—

 
—

 
—

 
2,792

Common shares held in treasury
—

 
—

 
(1,094
)
 
—

 
(1,094
)
Other shareholders' equity
2,202

 
10,141

 
28,893

 
(37,940
)
 
3,296

Total Tyco Shareholders' Equity
4,994

 
10,141

 
27,799

 
(37,940
)
 
4,994

Nonredeemable noncontrolling interest
—

 
—

 
16

 
—

 
16

Total Equity
4,994

 
10,141

 
27,815

 
(37,940
)
 
5,010

Total Liabilities, Redeemable Noncontrolling Interest and Equity
$
28,895

 
$
21,455

 
$
42,334

 
$
(80,319
)
 
$
12,365



42

TYCO INTERNATIONAL LTD.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
For the Nine Months Ended June 28, 2013
($ in millions)
 
Tyco
International
Ltd.
 
Tyco
International
Finance S.A.
 
Other
Subsidiaries
 
Consolidating
Adjustments
 
Total
Cash Flows From Operating Activities:
 
 
 
 
 
 
 
 
 
Net cash (used in) provided by operating activities
$
(242
)
 
$
388

 
$
326

 
$
—

 
$
472

Net cash provided by discontinued operating activities
—

 
—

 
5

 
—

 
5

Cash Flows From Investing Activities:
 
 
 
 
 
 
 
 
 
Capital expenditures
—

 
—

 
(284
)
 
—

 
(284
)
Proceeds from disposal of assets
—

 
—

 
4

 
—

 
4

Acquisition of businesses, net of cash acquired
—

 
—

 
(75
)
 
—

 
(75
)
Acquisition of dealer generated customer accounts and bulk account purchases
—

 
—

 
(17
)
 
—

 
(17
)
Intercompany dividend from subsidiary
—

 
32

 
—

 
(32
)
 
—

Net increase in intercompany loans
—

 
(359
)
 
—

 
359

 
—

Net increase in investments
—

 
—

 
(79
)
 
—

 
(79
)
Other
—

 
—

 
6

 
—

 
6

Net cash used in investing activities
—

 
(327
)
 
(445
)
 
327

 
(445
)
Cash Flows From Financing Activities:
 
 
 
 
 
 
 
 
 
Net repayments of debt
—

 
—

 
(11
)
 
—

 
(11
)
Proceeds from exercise of share options
—

 
—

 
125

 
—

 
125

Dividends paid
(214
)
 
—

 
—

 
—

 
(214
)
Intercompany dividend to parent
—

 
—

 
(32
)
 
32

 
—

Repurchase of common shares by treasury
—

 
—

 
(300
)
 
—

 
(300
)
Net intercompany loan borrowings (repayments)
366

 
—

 
(7
)
 
(359
)
 
—

Transfer from (to) discontinued operations
90

 
(61
)
 
6

 
—

 
35

Other
—

 
—

 
(35
)
 
—

 
(35
)
Net cash provided by (used in) financing activities
242

 
(61
)
 
(254
)
 
(327
)
 
(400
)
Net cash used in discontinued financing activities
—

 
—

 
(35
)
 
—

 
(35
)
Effect of currency translation on cash
—

 
—

 
(16
)
 
—

 
(16
)
Net decrease in cash and cash equivalents
—

 
—

 
(419
)
 
—

 
(419
)
Less: net decrease in cash and cash equivalents related to discontinued operations
—

 
—

 
(30
)
 
—

 
(30
)
Cash and cash equivalents at beginning of period
—

 
—

 
844

 
—

 
844

Cash and cash equivalents at end of period
$
—

 
$
—

 
$
455

 
$
—

 
$
455




43

TYCO INTERNATIONAL LTD.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
For the Nine Months Ended June 29, 2012
($ in millions)
 
Tyco
International
Ltd.
 
Tyco
International
Finance S.A.
 
Other
Subsidiaries
 
Consolidating
Adjustments
 
Total
Cash Flows From Operating Activities:
 
 
 
 
 
 
 
 
 
Net cash (used in) provided by operating activities
$
(354
)
 
$
1,363

 
$
(533
)
 
$
—

 
$
476

Net cash provided by discontinued operating activities
—

 
—

 
1,354

 
—

 
1,354

Cash Flows From Investing Activities:
 
 
 
 
 
 
 
 
 
Capital expenditures
—

 
—

 
(296
)
 
—

 
(296
)
Proceeds from disposal of assets
—

 
—

 
4

 
—

 
4

Acquisition of businesses, net of cash acquired
—

 
—

 
(217
)
 
—

 
(217
)
Acquisition of dealer generated customer accounts and bulk account purchases
—

 
—

 
(18
)
 
—

 
(18
)
Net increase in intercompany loans
—

 
(1,353
)
 
—

 
1,353

 
—

(Increase) decrease in investment in subsidiaries
(623
)
 
(10
)
 
16

 
617

 
—

Net decrease in investments
—

 
—

 
45

 
—

 
45

Other
—

 
—

 
16

 
—

 
16

Net cash used in investing activities
(623
)
 
(1,363
)
 
(450
)
 
1,970

 
(466
)
Net cash used in discontinued investing activities
—

 
—

 
(904
)
 
11

 
(893
)
Cash Flows From Financing Activities:
 
 
 
 
 
 
 
 
 
Net repayments of debt
—

 
—

 
(1
)
 
—

 
(1
)
Proceeds from exercise of share options
—

 
—

 
140

 
—

 
140

Dividends paid
(346
)
 
—

 
—

 
—

 
(346
)
Repurchase of common shares by treasury
—

 
—

 
(500
)
 
—

 
(500
)
Net intercompany loan borrowings
1,323

 
—

 
30

 
(1,353
)
 
—

Increase in equity from parent
—

 
—

 
71

 
(71
)
 
—

Transfer from discontinued operations
—

 
—

 
968

 
(546
)
 
422

Other
—

 
—

 
(22
)
 
—

 
(22
)
Net cash provided by (used in) financing activities
977

 
—

 
686

 
(1,970
)
 
(307
)
Net cash provided by (used in) discontinued financing activities
—

 
—

 
132

 
(557
)
 
(425
)
Effect of currency translation on cash
—

 
—

 
(10
)
 
—

 
(10
)
Effect of currency translation on cash related to discontinued operations
—

 
—

 
(1
)
 
—

 
(1
)
Net increase (decrease) in cash and cash equivalents
—

 
—

 
274

 
(546
)
 
(272
)
Less: net increase in cash and cash equivalents related to discontinued operations
—

 
—

 
581

 
(546
)
 
35

Cash and cash equivalents at beginning of period
—

 
—

 
1,229

 
—

 
1,229

Cash and cash equivalents at end of period
$
—

 
$
—

 
$
922

 
$
—

 
$
922


44

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 unaudited Consolidated Financial Statements and the related notes included elsewhere 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".
Organization
The unaudited Consolidated Financial Statements include the consolidated results of Tyco International Ltd., a company organized under the laws of Switzerland, and its subsidiaries (hereinafter collectively referred to as "we", the "Company" or "Tyco"). The financial statements have been prepared in United States dollars ("USD"), in accordance with accounting principles generally accepted in the United States ("GAAP").
Effective September 28, 2012, Tyco completed the spin-offs of The ADT Corporation ("ADT") and Pentair Ltd. (formerly known as Tyco Flow Control International Ltd. ("Tyco Flow Control")), formerly our North American residential security and flow control businesses, respectively, into separate, publicly traded companies in the form of a distribution to Tyco shareholders. Immediately following the spin-off, Pentair Inc. was merged with a subsidiary of Tyco Flow Control in a tax-free, all-stock merger ("the Merger"), with Pentair Ltd. ("Pentair") succeeding Pentair Inc. as an independent publicly traded company. The distribution was made on September 28, 2012, to Tyco shareholders of record on September 17, 2012. Each Tyco shareholder received 0.50 of a common share of ADT and approximately 0.24 of a common share of Pentair Ltd. for each Tyco common share held on the record date. The distribution was structured to be tax-free to Tyco shareholders except to the extent of cash received in lieu of fractional shares. The distributions, the Merger and related transactions are collectively referred to herein as the "2012 Separation". As a result of the distribution, the operations of Tyco's former North American residential security and flow control businesses are now classified as discontinued operations in all periods presented.
After giving effect to the 2012 Separation, we operate and report financial and operating information in the following three segments:
•
NA Installation & Services designs, sells, installs, services and monitors electronic security systems and fire detection and suppression systems for commercial, industrial, retail, institutional and governmental customers in North America.
•
ROW Installation & Services designs, sells, installs, services and monitors electronic security systems and fire detection and suppression systems for commercial, industrial, retail, residential, small business, institutional and governmental customers in the Rest of World regions.
•
Global Products designs, manufactures and sells fire protection, security and life safety products, including intrusion security, anti-theft devices, breathing apparatus and access control and video management systems, for commercial, industrial, retail, residential, small business, institutional and governmental customers worldwide, including products installed and serviced by our NA and ROW Installation & Services segments.
We also provide general corporate services to our segments which is reported as a fourth, non-operating segment, Corporate and Other.
References to the segment data are to the Company's continuing operations. As discussed above, as a result of the 2012 Separation, the Company reports under a new segment structure beginning in the fourth quarter of fiscal 2012 and accordingly has recast prior period segment amounts. See Note 15 to the unaudited Consolidated Financial Statements.
Business Overview
We are a leading global provider of security products and services, fire detection and suppression products and services and life safety products. We utilize our extensive global footprint of over 1,200 locations, including manufacturing facilities, service and distribution centers, monitoring centers and sales offices, to provide solutions and localized expertise to our global customer base. We provide an extensive range of product and service offerings to over 3 million customers in more than 100 countries through multiple channels. Our revenues are broadly diversified across the United States and Canada (collectively "North America"); Central America and South America (collectively "Latin America"); Europe, the Middle East, and Africa (collectively "EMEA") and the Asia-Pacific region. We refer to Latin America, EMEA, and Asia-Pacific region collectively as "Rest of World" or "ROW". The following chart reflects our net revenue by region for the nine months ended June 28, 2013.

45


Nine Months Ended June 28, 2013
Net Revenue by Region

Our end-use customers, to whom we may sell directly or through wholesalers, distributors, commercial builders or contractors, are also broadly diversified and include:
•
Commercial customers, including residential and commercial property developers, financial institutions, food service businesses and commercial enterprises;
•
Industrial customers, including companies in the oil & gas, power generation, mining, petrochemical and other industries;
•
Retail customers, including international, regional and local consumer outlets, from national chains to specialty stores;
•
Institutional customers, including a broad range of healthcare facilities, academic institutions, museums and foundations;
•
Governmental customers, including federal, state and local governments, defense installations, mass transportation networks, public utilities and other government-affiliated entities and applications;
•
Residential and small business customers outside of North America, including owners of single family homes and local providers of a wide range of goods and services.
As a global business with a varied customer base and an extensive range of products and services, our operations and results are impacted by global, regional and industry specific factors, and by political factors. Our geographic diversity and the diversity in our customer base and our products and services has helped mitigate the impact of any one industry or the economy of any single country on our consolidated operating results, financial condition and cash flows. Due to the global nature of our

46

business and the variety of our customers, products and services, no single factor is predominantly used to forecast Company results. Rather, management monitors a number of factors to develop expectations regarding future results, including the activity of key competitors and customers, order rates for longer lead time projects, and capital expenditure budgets and spending patterns of our customers. We also monitor trends throughout the commercial and residential fire and security markets, including building codes and fire-safety standards. Our commercial installation businesses are impacted by trends in commercial construction starts, while our residential business, which is located outside of the United States, is impacted by new housing starts.
Results of Operations
Consolidated financial information is as follows:
 
For the Quarters Ended
 
For the Nine Months Ended
($ in millions)
June 28,
2013
 
June 29,
2012
 
June 28,
2013
 
June 29,
2012
Net revenue
$
2,678

 
$
2,655

 
$
7,886

 
$
7,675

Net revenue growth
0.9
%
 
N/A

 
2.7
%
 
N/A

Organic revenue growth
0.6
%
 
N/A

 
1.2
%
 
N/A

Operating income
$
189

 
$
118

 
$
547

 
$
532

Operating margin
7.1
%
 
4.4
%
 
6.9
%
 
6.9
%
Interest income
$
6

 
$
5

 
$
14

 
$
14

Interest expense
26

 
59

 
75

 
176

Other (expense) income, net
(1
)
 
1

 
(30
)
 
(1
)
Income tax expense/(benefit)
30

 
(6
)
 
73

 
54

Equity loss in earnings of unconsolidated subsidiaries
6

 
7

 
18

 
19

Net Revenue
Net revenue for the quarter ended June 28, 2013 increased by $23 million, or 0.9%, to $2,678 million as compared to net revenue of $2,655 million for the quarter ended June 29, 2012. On an organic basis, net revenue grew by $17 million, or 0.6%, year over year, primarily as a result of revenue growth in our Global Products segment and to a lesser extent in our ROW Installation & Services segment, partially offset by a decline in our NA Installation & Services segment driven by our security business. Net revenue was favorably impacted by acquisitions of $21 million, or 0.8%, primarily within our ROW Installation & Services segment. Changes in foreign currency exchange rates, primarily in our ROW Installation & Services segment, unfavorably impacted net revenue by $16 million, or 0.6%. Net revenue growth was also unfavorably impacted by a divestiture of $10 million, or 0.4% in our NA Installation & Services segment.
Net revenue for the nine months ended June 28, 2013 increased by $211 million, or 2.7%, to $7,886 million as compared to net revenue of $7,675 million for the nine months ended June 29, 2012. On an organic basis, net revenue grew by $95 million, or 1.2%, year over year, primarily as a result of revenue growth in our Global Products segment and to lesser extent in our ROW Installation & Services segment, partially offset by a decline in our NA Installation & Services segment driven by our security business. Net revenue was favorably impacted by acquisitions of $125 million, or 1.6%, primarily within our ROW Installation & Services and Global Products segments. Changes in foreign currency exchange rates, primarily in our ROW Installation & Services segment, unfavorably impacted net revenue by $17 million, or 0.2%. Net revenue growth was also unfavorably impacted by divestitures of $20 million, or 0.3%, primarily in our NA and ROW Installation & Services segments.
Operating Income
Operating income for the quarter ended June 28, 2013 increased by $71 million, or 60.2%, to $189 million, as compared to operating income of $118 million for the quarter ended June 29, 2012. The increase in operating income was primarily due to the prior year period including $108 million in net asbestos charges as compared to $12 million for the quarter ended June 28, 2013. See Note 11 to our unaudited Consolidated Financial Statements for further information. Operating income was unfavorably impacted by separation costs as well as an increase in restructuring charges, primarily in our NA and ROW Installation & Services segments, for the quarter ended June 28, 2013 as compared to the prior year period.
Operating income for the nine months ended June 28, 2013 increased by $15 million, or 2.8%, to $547 million, as compared to operating income of $532 million for the nine months ended June 29, 2012. Operating income for the nine months

47

ended June 28, 2013 was favorably impacted by our net revenue growth, a smaller corporate footprint as a result of the 2012 Separation, as well as operating efficiencies and the benefits of ongoing cost containment and restructuring actions. Additionally, the prior year period included $108 million in net asbestos charges as compared to $10 million for the nine months ended June 28, 2013. Operating income for the nine months ended June 28, 2013 was unfavorably impacted by charges of $100 million recorded in the first and second quarters of fiscal 2013 for additional environmental remediation activities planned for a Global Products facility located in Marinette, Wisconsin, as compared to charges of $13 million in the comparable prior year period. See Note 11 to our unaudited Consolidated Financial Statements for further information on our asbestos and environmental matters. Operating income for the nine months ended June 28, 2013 was also unfavorably impacted by separation costs and an increase in restructuring charges.
Key items impacting operating income for the quarters and nine months ended June 28, 2013 and June 29, 2012, respectively, are as follows:
 
For the Quarters Ended
 
For the Nine Months Ended
($ in millions)
June 28,
2013
 
June 29,
2012
 
June 28,
2013
 
June 29,
2012
Restructuring, repositioning and asset impairment charges, net
$
58

 
$
17

 
$
94

 
$
69

Losses on divestitures, net
4

 
9

 
10

 
12

Separation costs
22

 
7

 
56

 
11

Acquisition and integration costs
1

 
4

 
2

 
7

Legacy legal charges
27

 
29

 
27

 
49

Former management compensation reversal
—

 
—

 
—

 
(50
)
Asbestos related charges
12

 
108

 
10

 
108

Environmental remediation costs—Marinette
—

 
13

 
100

 
13

We continue to identify and pursue opportunities for cost savings through restructuring activities and workforce reductions to improve operating efficiencies across our businesses. Additionally, we initiated certain global actions designed to reduce our cost structure and improve future profitability by streamlining operations and better aligning functions, which we refer to as repositioning actions. The Company expects to incur approximately $125 million of restructuring and repositioning charges in fiscal 2013. See Note 4 to the unaudited Consolidated Financial Statements.
Interest Income and Expense
Interest income was $6 million and $5 million for the quarters ended June 28, 2013 and June 29, 2012, respectively. Interest income was $14 million for both the nine months ended June 28, 2013 and June 29, 2012.
Interest expense was $26 million in the quarter ended June 28, 2013 compared to $59 million in the quarter ended June 29, 2012, and $75 million in the nine months ended June 28, 2013 compared to $176 million in the nine months ended June 29, 2012. The decrease in interest expense is primarily related to savings realized from the redemption of $2.6 billion of debt securities in connection with the 2012 Separation.
Other Expense, Net
Significant components of Other (expense) income, net for the quarters and the nine months ended June 28, 2013 and June 29, 2012 are as follows ($ in millions):


48

 
For the Quarters Ended
 
For the Nine Months Ended
 
June 28,
2013
 
June 29,
2012
 
June 28,
2013
 
June 29,
2012
2012 Tax Sharing Agreement charges (see Note 6 to the unaudited Consolidated Financial Statements)
$
(1
)
 
$
—

 
$
(31
)
 
$
—

2007 Tax Sharing Agreement charges (see Note 6 to the unaudited Consolidated Financial Statements)
—

 
1

 
—

 
(3
)
Other
—

 
—

 
1

 
2

Total
$
(1
)
 
$
1

 
$
(30
)
 
(1
)
Effective Income Tax Rate
Our effective income tax rate was 17.9% during the quarter ended June 28, 2013 and was a benefit of 9.2% for the quarter ended June 29, 2012. The increase in our effective tax rate was primarily due to a non-recurring item generating tax benefit during the prior year period.
Our effective income tax rate was 16.0% and 14.6% during the nine months ended June 28, 2013 and June 29, 2012, respectively. The increase in our effective tax rate was primarily due to a number of non-recurring tax benefits during the prior year period.
The rate can vary from quarter to quarter due to discrete items, such as the settlement of income tax audits and changes in tax laws, as well as recurring factors such as the geographic mix of income before taxes.
Equity Loss in Earnings of Unconsolidated Subsidiaries
Equity loss in earnings of unconsolidated subsidiaries reflects our share of Atkore International Group's ("Atkore") net loss, which is accounted for under the equity method of accounting. Equity loss in earnings of unconsolidated subsidiaries during the quarters ended June 28, 2013 and June 29, 2012 was $6 million and $7 million, respectively. Equity loss in earnings of unconsolidated subsidiaries was $18 million and $19 million during the nine months ended June 28, 2013 and June 29, 2012, respectively.

49

Segment Results
The following chart reflects our net revenue by operating segment, as well as the percent of net revenue by operating segment, for the quarter and nine months ended June 28, 2013 and June 29, 2012, respectively.
The segment discussions that follow describe the significant factors contributing to the changes in results for each of our segments included in continuing operations.
NA Installation & Services
Financial information for NA Installation & Services for the quarters and nine months ended June 28, 2013 and June 29, 2012 was as follows:
 
For the Quarters Ended
 
For the Nine Months Ended
($ in millions)
June 28,
2013
 
June 29,
2012
 
June 28,
2013
 
June 29,
2012
Net revenue
$
966

 
$
1,005

 
$
2,895

 
$
2,920

Net revenue decline
(3.9
)%
 
N/A

 
(0.9
)%
 
N/A

Organic revenue decline
(2.7
)%
 
N/A

 
(0.7
)%
 
N/A

Operating income
$
88

 
$
94

 
$
275

 
$
265

Operating margin
9.1
 %
 
9.4
%
 
9.5
 %
 
9.1
%

50

Net Revenue
The change in net revenue compared to the prior periods is attributable to the following:
Factors Contributing to Year-Over-Year Change
 
Third Quarter
Fiscal 2013
Compared to
Third Quarter
Fiscal 2012
 
Year to Date Fiscal 2013
Compared to
Year to Date Fiscal 2012
Organic revenue decline
 
$
(27
)
 
$
(21
)
Acquisitions
 
1

 
5

Divestitures
 
(10
)
 
(10
)
Impact of foreign currency
 
(2
)
 
2

Other
 
$
(1
)
 
$
(1
)
Total change
 
$
(39
)
 
$
(25
)
Net revenue decreased $39 million, or 3.9%, to $966 million for the quarter ended June 28, 2013 as compared to $1,005 million for the quarter ended June 29, 2012. Organic revenue decline for the quarter ended June 28, 2013 was primarily driven by a decline in revenue in the North America security business as a result of project selectivity, partially offset by increased service revenue growth in our North America fire business. Net revenue was unfavorably impacted by $10 million, or 1.0%, primarily due to the divestiture of our North America guarding business in the third quarter of fiscal 2013.
Net revenue decreased $25 million, or 0.9%, to $2,895 million for the nine months ended June 28, 2013 as compared to $2,920 million for the nine months ended June 29, 2012. Organic revenue decline for the nine months ended June 28, 2013 was primarily driven by a decline in revenue in the North America security business as a result of project selectivity, offset by revenue growth in our North America fire business. Net revenue was unfavorably impacted by $10 million, or 0.3%, primarily due to the divestiture of our North America guarding business in the third quarter of fiscal 2013. Net revenue was favorably impacted by $5 million, or 0.2% due to an acquisition during the first quarter of fiscal 2013.
Operating Income
Operating income for the quarter ended June 28, 2013 decreased $6 million, or 6.4%, to $88 million, as compared to operating income of $94 million for the quarter ended June 29, 2012. Operating income for the quarter ended June 28, 2013 decreased primarily due to separation and dis-synergy costs related to the 2012 Separation and higher restructuring charges. These items were partially offset by a higher mix of service revenue across all of our businesses and efficiencies gained through improved installation execution and project selectivity in the North America security business. Additionally, the quarter ended June 29, 2012 included a charge of $29 million for the settlement of an ERISA partial withdrawal liability assessment.
Operating income for the nine months ended June 28, 2013 increased $10 million, or 3.8%, to $275 million, as compared to operating income of $265 million for the nine months ended June 29, 2012. Operating income for the nine months ended June 28, 2013 increased due to a higher mix of service revenue across all of our businesses and efficiencies gained through improved installation execution and project selectivity in the North America security business. Additionally, the nine months ended June 29, 2012 included a charge of $29 million for the settlement of an ERISA partial withdrawal liability assessment. These items were partially offset by unfavorable impacts due to separation costs as well as dis-synergy costs related to the 2012 separation.
Key items impacting operating income for the quarters and nine months ended June 28, 2013 and June 29, 2012, respectively, are as follows:
 
For the Quarters Ended
 
For the Nine Months Ended
($ in millions)
June 28,
2013
 
June 29,
2012
 
June 28,
2013
 
June 29,
2012
Restructuring and asset impairment charges, net
$
16

 
$
—

 
$
22

 
$
28

Losses on divestitures, net
1

 
—

 
4

 
—

Separation costs
12

 
—

 
40

 
—

Legacy legal charges
—

 
29

 
—

 
29


51

ROW Installation & Services
Financial information for ROW Installation & Services for the quarters and nine months ended June 28, 2013 and June 29, 2012 were as follows:
 
For the Quarters Ended
 
For the Nine Months Ended
($ in millions)
June 28,
2013
 
June 29,
2012
 
June 28,
2013
 
June 29,
2012
Net revenue
$
1,112

 
$
1,087

 
$
3,279

 
$
3,213

Net revenue growth
2.3
%
 
N/A

 
2.1
%
 
N/A

Organic revenue growth
1.7
%
 
N/A

 
0.9
%
 
N/A

Operating income
$
104

 
$
118

 
$
323

 
$
333

Operating margin
9.4
%
 
10.9
%
 
9.9
%
 
10.4
%
Net Revenue
The change in net revenue compared to the prior periods is attributable to the following:
Factors Contributing to Year-Over-Year Change
 
Third Quarter
Fiscal 2013
Compared to
Third Quarter
Fiscal 2012
 
Year to Date Fiscal 2013
Compared to
Year to Date Fiscal 2012
Organic revenue growth
 
$
18

 
$
30

Acquisitions
 
20

 
66

Divestitures
 
—

 
(10
)
Impact of foreign currency
 
(13
)
 
(20
)
Total change
 
$
25

 
$
66

Net revenue increased $25 million, or 2.3%, to $1,112 million for the quarter ended June 28, 2013 as compared to $1,087 million for the quarter ended June 29, 2012. Organic revenue growth for the quarter ended June 28, 2013 was driven by an increase in service revenue in Asia, Latin America and Europe, partially offset by a decline in our Pacific region. Partially offsetting the increase in our service revenue was a decrease in installation revenue, driven by declines in Europe offset by growth in our Pacific region. The net impact of acquisitions was $20 million, or 1.8%, primarily due to acquisitions within the United Kingdom during the second quarter of fiscal 2013 and our Pacific region during the third quarter of fiscal 2013. Changes in foreign currency exchange rates unfavorably impacted net revenue by $13 million, or 1.2%.
Net revenue increased $66 million, or 2.1%, to $3,279 million for the nine months ended June 28, 2013 as compared to $3,213 million for the nine months ended June 29, 2012. Organic revenue growth for the nine months ended June 28, 2013 was driven by service revenue growth in Asia, Latin America and Europe, partially offset by a decline in our Pacific region. The growth in service revenue was partially offset by a decrease in installation revenue, driven by declines in Europe and the United Kingdom offset by growth in Latin America. Net revenue was favorably impacted by the net impact of acquisitions of $66 million, or 2.1%, primarily due to the acquisitions within the United Kingdom and our Pacific region during fiscal 2013 as well as acquisitions in Asia during fiscal 2012. Net revenue was unfavorably impacted by the net impact of divestitures of $10 million, or 0.3%. Changes in foreign currency exchanges rates unfavorably impacted net revenue by $20 million, or 0.6%.
Operating Income
Operating income for the quarter ended June 28, 2013 decreased $14 million, or 11.9%, to $104 million as compared to operating income of $118 million for the quarter ended June 29, 2012. Operating income for the quarter ended June 28, 2013 was unfavorably impacted by an increase in restructuring charges compared to the prior year period, partially offset by favorable impacts from service volume flow through as well as the benefit of on-going cost saving initiatives.
Operating income for the nine months ended June 28, 2013 decreased $10 million, or 3.0%, to $323 million, as compared to operating income of $333 million for the nine months ended June 29, 2012. Operating income for the nine months ended June 28, 2013 decreased primarily due to an increase in restructuring charges, partially offset by our continued focus on increasing service revenue, as well as the benefit of ongoing cost saving initiatives.

52

Key items impacting operating income for the quarters and nine months ended June 28, 2013 and June 29, 2012, respectively, are as follows:
 
For the Quarters Ended
 
For the Nine Months Ended
($ in millions)
June 28,
2013
 
June 29,
2012
 
June 28,
2013
 
June 29,
2012
Restructuring, repositioning and asset impairment charges, net
$
34

 
$
12

 
$
54

 
$
28

Losses on divestitures, net
—

 
—

 
1

 
4

Acquisition and integration costs
1

 
3

 
1

 
4

Global Products
Financial information for Global Products for the quarters and nine months ended June 28, 2013 and June 29, 2012 was as follows:
 
For the Quarters Ended
 
For the Nine Months Ended
($ in millions)
June 28,
2013
 
June 29,
2012
 
June 28,
2013
 
June 29,
2012
Net revenue
$
600

 
$
563

 
$
1,712

 
$
1,542

Net revenue growth
6.6
%
 
N/A

 
11.0
%
 
N/A

Organic revenue growth
4.6
%
 
N/A

 
5.6
%
 
N/A

Operating income
$
114

 
$
98

 
$
188

 
$
265

Operating margin
19.0
%
 
17.4
%
 
11.0
%
 
17.2
%
Net Revenue
The change in net revenue compared to the prior periods is attributable to the following:
Factors Contributing to Year-Over-Year Change
 
Third Quarter
Fiscal 2013
Compared to
Third Quarter
Fiscal 2012
 
Year to Date Fiscal 2013
Compared to
Year to Date Fiscal 2012
Organic revenue growth
 
$
26

 
$
86

Acquisitions
 
—

 
54

Impact of foreign currency
 
(1
)
 
1

Other(1)
 
12

 
29

Total change
 
$
37

 
$
170

_______________________________________________________________________________

(1) 
Primarily represents contractual revenue from ADT under the 2012 Separation and Distribution Agreement.
Net revenue increased $37 million, or 6.6%, to $600 million for the quarter ended June 28, 2013 as compared to $563 million for the quarter ended June 29, 2012. Organic revenue growth for the quarter ended June 28, 2013 was driven by growth across all three of our product platforms.
Net revenue increased $170 million, or 11.0%, to $1,712 million for the nine months ended June 28, 2013 as compared to $1,542 million for the nine months ended June 29, 2012. Organic revenue growth for the nine months ended June 28, 2013 was driven by growth across all three of our product platforms. Net revenue was favorably impacted by acquisitions of $54 million, or 3.5%, primarily due to acquisitions within our fire and security products businesses during fiscal 2012.
Operating Income
Operating income for the quarter ended June 28, 2013 increased $16 million, or 16.3%, to $114 million, as compared to operating income of $98 million for the quarter ended June 29, 2012. The increase was driven by net revenue growth for the quarter ended June 28, 2013. In addition, the prior year period included a charge of $13 million for additional environmental remediation activities planned for a facility located in Marinette, Wisconsin. See Note 11 to our unaudited Consolidated

53

Financial Statements for further information. The increase in operating income due to the above reasons was partially offset by unfavorable impacts attributable to product mix.
Operating income for the nine months ended June 28, 2013 decreased $77 million, or 29.1%, to $188 million, as compared to operating income of $265 million for the nine months ended June 29, 2012. Operating income for the nine months ended June 28, 2013 was unfavorably impacted by charges of $100 million recorded in the first and second quarters of fiscal 2013 for additional environmental remediation activities planned for a facility located in Marinette, Wisconsin. See Note 11 to our unaudited Consolidated Financial Statements for further information. Our operating income was favorably impacted by net revenue growth for the nine months ended June 28, 2013 partially offset by additional investments in research and development and sales and marketing costs.
Key items impacting operating income for the quarters and the nine months ended June 28, 2013 and June 29, 2012, respectively, are as follows:
 
For the Quarters Ended
 
For the Nine Months Ended
($ in millions)
June 28,
2013
 
June 29,
2012
 
June 28,
2013
 
June 29,
2012
Restructuring and asset impairment charges, net
$
5

 
$
1

 
$
10

 
$
6

Environmental remediation costs—Marinette
—

 
13

 
100

 
13

Corporate and Other
Corporate expense decreased $75 million, or 39.1%, to $117 million for the quarter ended June 28, 2013 as compared to $192 million for the quarter ended June 29, 2012. The decrease in Corporate expense was primarily due to a decline in net asbestos charges to $12 million in the quarter ended June 28, 2013 from $108 million in the prior year period. The net asbestos charges during the quarter ended June 28, 2013 primarily relate to the Yarway Corporation, one of the Company's indirect subsidiaries, which filed for bankruptcy protection during the third quarter of fiscal 2013. The net asbestos charges during the quarter ended June 29, 2012 were primarily due to the Company revising its look-back period for historical claim experience for the past five years to the past three years, as well as its look-forward period related to the projection of future claims from seven years to fifteen years. Favorable impacts due to a smaller corporate footprint as a result of the 2012 Separation also contributed to the decrease in corporate expense for the quarter ended June 28, 2013 as compared to the prior year period, partially offset by a charge of $27 million resulting from the write-off of an insurance receivable that had been established in respect of a legacy claim. See Note 11 to the unaudited Consolidated Financial Statements for additional information related to our asbestos and legacy legal matters.
Corporate expense decreased $92 million, or 27.8%, to $239 million for the nine months ended June 28, 2013 as compared to $331 million for the nine months ended June 29, 2012. The decrease in Corporate expense was primarily due to a decline in net asbestos charges to $10 million in the nine months ended June 28, 2013 from $108 million in the prior year period. The net asbestos charges during the nine months ended June 28, 2013 primarily relate to the Yarway Corporation, one of the Company's indirect subsidiaries, which filed for bankruptcy protection during the third quarter of fiscal 2013. The net asbestos charges during the nine months ended June 29, 2012 were primarily due to the Company revising its look-back period for historical claim experience for the past five years to the past three years, as well as its look-forward period related to the projection of future claims from seven years to fifteen years. Favorable impacts due to a smaller corporate footprint as a result of the 2012 Separation also contributed to the decrease in corporate expense for the nine months ended June 28, 2013 as compared to the prior year period. The decreases in Corporate expense were partially offset by a charge of $27 million resulting from the write-off of an insurance receivable that had been established in respect of a legacy claim as well as a net benefit in the prior year period of approximately $30 million, primarily resulting from the reversal of a compensation reserve established in respect of legacy litigation with former management. See Note 11 to the unaudited Consolidated Financial Statements for additional information related to our asbestos and legacy legal matters.
Key items included in corporate expense for the quarters and the nine months ended June 28, 2013 and June 29, 2012, respectively, are as follows:

54

 
For the Quarters Ended
 
For the Nine Months Ended
($ in millions)
June 28,
2013
 
June 29,
2012
 
June 28,
2013
 
June 29,
2012
Losses on divestitures, net
$
3

 
$
9

 
$
5

 
$
8

Asbestos related charges
12

 
108

 
10

 
108

Separation costs
10

 
7

 
16

 
10

Restructuring, repositioning and asset impairment charges, net
3

 
4

 
8

 
7

Legacy legal charges
27

 
—

 
27

 
20

Former management compensation reversal
—

 
—

 
—

 
(50
)
Critical Accounting Policies and Estimates
The preparation of the unaudited Consolidated Financial Statements in conformity with US 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 methods of security monitoring-related assets, revenue recognition, loss contingencies, income taxes, goodwill and indefinite-lived intangible assets, long-lived assets and pension and postretirement benefits are based on, among other things, judgments and assumptions made by management that include inherent risks and uncertainties. During fiscal 2013, there have been 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 28, 2012 (the "2012 Form 10-K"). See Note 1 to the unaudited Consolidated Financial Statements for the adoption and issuance of new accounting standards during fiscal 2013.
Liquidity and Capital Resources
A fundamental objective of the Company is to have sufficient liquidity, balance sheet strength, and financial flexibility to fund the operating and capital requirements of its core businesses around the world. The primary source of funds to finance our operations and capital expenditures is cash generated by operations. In addition, we maintain a commercial paper program, have access to a committed revolving credit facility and have access to equity and debt capital from public and private sources. We continue to balance our operating, investing and financing uses of cash through investments and acquisitions in our core businesses, dividends and share repurchases. In addition, we believe our cash position, amounts available under our credit facility, commercial paper program and cash provided by operating activities will be adequate to cover our operational and business needs in the foreseeable future.
As of June 28, 2013 and September 28, 2012, our cash and cash equivalents, total debt and Tyco shareholders' equity are as follows:
 
As of
($ in millions)
June 28,
2013
 
September 28,
2012
Cash and cash equivalents(1)
$
455

 
$
844

Total debt
$
1,481

 
$
1,491

Total Tyco Shareholders' equity
$
4,707

 
$
4,994

Total debt as a % of total capital
23.9
%
 
23.0
%
_______________________________________________________________________________

(1) 
The Company expects to pay (i) $100 million, within the next 12 months, to settle intercompany liabilities due to Yarway and (ii) $163 million to settle certain pre-2012 Separation related tax liabilities. The timing and amounts of these payments are subject to a number of uncertainties and could change. See Notes 6 and 11 to the unaudited Consolidated Financial Statements.
Sources and uses of cash
Our cash flows from operating, investing and financing from continuing operations for the nine months ended June 28, 2013 and June 29, 2012 are summarized below:

55

 
For the Nine Months Ended
($ in millions)
June 28,
2013
 
June 29,
2012
Net cash provided by operating activities
$
472

 
$
476

Net cash used in investing activities
$
(445
)
 
$
(466
)
Net cash used in financing activities
$
(400
)
 
$
(307
)
Cash flow from operating activities
Cash flow from operating activities can fluctuate significantly from period to period as working capital needs and the timing of payments for items such as restructuring activities, pension funding, income taxes and other items impact reported cash flow.
The net change in working capital decreased operating cash flow by $374 million in the nine months ended June 28, 2013. The significant changes in working capital included a $220 million decrease in accrued and other liabilities, a $74 million increase in inventories, a $56 million decrease in accounts payable, a $44 million increase in accounts receivable, net partially offset by a $69 million decrease in prepaid expenses and other current assets.
The net change in working capital decreased operating cash flow by $273 million in the nine months ended June 29, 2012. The significant changes in working capital included a $137 million increase in prepaid expenses and other current assets, a $74 million increase in inventories, a $66 million increase in accounts receivable, net, a $54 million increase in contracts in progress and a $49 million decrease in accrued and other liabilities.
During the nine months ended June 28, 2013 and June 29, 2012, we paid approximately $61 million and $65 million, respectively, in cash related to restructuring activities. See Note 4 to our unaudited Consolidated Financial Statements for further information regarding our restructuring activities.
In connection with the 2012 Separation, we paid $151 million and $1 million in separation costs during the nine months ended June 28, 2013 and June 29, 2012, respectively.
During the nine months ended June 28, 2013, we received asbestos recoveries net of payments of $24 million.
During the nine months ended June 28, 2013 and June 29, 2012, we made environmental remediation payments of $24 million and $3 million, respectively.
During the nine months ended June 28, 2013 and June 29, 2012, we made required contributions of $5 million and $14 million, respectively, to our U.S. pension plans and $36 million and $40 million, respectively, to our non-U.S. pension plans. We anticipate that we will contribute at least the minimum required to our pension plans in 2013 of $11 million for our U.S. plans and $50 million for our non-U.S. plans.
Income taxes paid, net of refunds, related to continuing operations were $124 million and $114 million during the nine months ended June 28, 2013 and June 29, 2012, respectively.
Net interest paid related to continuing operations were $48 million and $129 million for the nine months ended June 28, 2013 and June 29, 2012, respectively. The decrease in cash paid for interest primarily related to savings realized from the redemption of $2.6 billion of debt securities in connection with the 2012 Separation.
Cash flow from investing activities
Cash flows related to investing activities consist primarily of cash used for capital expenditures, acquisitions, proceeds derived from divestitures of businesses, assets and the purchase and sales and maturities of investments.
We made capital expenditures of $284 million and $296 million for the nine months ended June 28, 2013 and June 29, 2012, respectively. The level of capital expenditures in fiscal 2013 is expected to decline from the spending levels in fiscal 2012 but is expected to exceed depreciation expense.
During the nine months ended June 28, 2013, we paid cash for acquisitions included in continuing operations totaling $75 million, net of $3 million cash acquired, which related to acquisitions included in our NA Installation & Services and ROW Installation & Services segments. During the nine months ended June 29, 2012, we paid cash for acquisitions included in continuing operations totaling $217 million, net of $16 million cash acquired, which includes the acquisition of Visonic within our Global Products segment, as well as other acquisitions included in our Global Products and ROW Installation & Services segments.

56

We maintain a captive insurance company to manage certain of our insurable liabilities. The captive insurance company holds certain investments in an escrow account for the purpose of providing collateral for our insurable liabilities. During the nine months ended June 28, 2013, our captive insurance company made net purchases of approximately $79 million.
Cash flow from financing activities
Cash flows from financing activities relate primarily to proceeds received from incurring debt and issuing stock, and cash used to repay debt, repurchase stock and make dividend payments to shareholders.
As of June 28, 2013 and September 28, 2012, TIFSA had no commercial paper outstanding. The maximum aggregate amount of unsecured commercial paper notes available to be issued, on a private placement basis, under the commercial paper program is $1 billion as of June 28, 2013.
Pursuant to our share repurchase 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 trading plan in accordance with applicable regulations. In January 2013, the Company's Board of Directors approved an additional $600 million in share repurchase authority. During the nine months ended June 28, 2013, we repurchased approximately 10 million common shares for approximately $300 million under our 2011 and 2013 share repurchase programs, which completed the 2011 program. As of June 28, 2013, approximately $500 million remained authorized under our 2013 share repurchase program. During the nine months ended June 29, 2012, we repurchased approximately 11 million common shares for approximately $500 million under our 2011 share repurchase program.
On September 17, 2012, our shareholders approved a cash dividend of $0.30 per common share payable to shareholders in two quarterly installments of $0.15 per share to be paid November 15, 2012 and February 20, 2013. On March 6, 2013, our shareholders approved a cash dividend of $0.64 per common share payable to shareholders in four quarterly installments of $0.16 in May 2013, August 2013, November 2013 and February 2014. During the nine months ended June 28, 2013 and June 29, 2012, we paid cash dividends of approximately $214 million and $346 million, respectively.
Management believes that cash generated by or available to us should be sufficient to fund our capital and operational business needs for the foreseeable future, including capital expenditures, quarterly dividend payments, share repurchases, and separation-related expenses.

Commitments and Contingencies
For a detailed discussion of contingencies related to tax and litigation matters and governmental investigations, see Notes 6 and 11 to our unaudited Consolidated Financial Statements.
Backlog
We had a backlog of unfilled orders of $5,323 million and $5,142 million as of June 28, 2013 and September 28, 2012, respectively. Backlog by segment was as follows ($ in millions):
 
June 28,
2013
 
September 28,
2012
NA Installation & Services
$
2,475

 
$
2,507

ROW Installation & Services
2,620

 
2,476

Global Products
228

 
159

 
$
5,323

 
$
5,142

The Company's backlog includes recurring revenue-in-force and long-term deferred revenue for upfront fees. Revenue-in-force represents 12 months' revenue associated with monitoring and maintenance services under contract in the security and fire business. The Company's backlog of $5,323 million and $5,142 million as of June 28, 2013 and September 28, 2012, respectively, consists primarily of $2,789 million and $2,723 million of recurring revenue in force and $369 million and $395 million of deferred revenue as of June 28, 2013 and September 28, 2012, respectively. NA Installation & Service's backlog of $2,475 million and $2,507 million, as of June 28, 2013 and September 28, 2012, respectively, consists primarily of $1,238 million and $1,227 million of recurring revenue in force and $302 million and $325 million of deferred revenue as of June 28, 2013 and September 28, 2012, respectively. ROW Installation & Service's backlog of $2,620 million and $2,476 million, as of June 28, 2013 and September 28, 2012, respectively, consists primarily of $1,551 million and $1,496 million of recurring revenue in force and $66 million and $70 million of deferred revenue as of both June 28, 2013 and September 28, 2012.

57

Backlog increased $181 million, or 3.5%, to $5,323 million as of June 28, 2013 compared to September 28, 2012. The net increase in backlog was primarily related to increases in our ROW Installation & Services as a result of growth in installation backlog, primarily in Europe and Asia, as well as growth in revenue-in-force, and to increases in our Global Products segment across all three product platforms. Changes in foreign currency unfavorably impacted backlog by $162 million, or 3.2%.
Guarantees
Certain of our business segments have guaranteed the performance of third-parties and provided financial guarantees for uncompleted work and financial commitments. The terms of these guarantees vary with end dates ranging from the current fiscal year through the completion of such transactions. The guarantees would typically be triggered in the event of nonperformance and we believe that performance under the guarantees, if required, would not have a material effect on our financial position, results of operations or cash flows.
There are certain guarantees or indemnifications extended among Tyco, Covidien, TE Connectivity, ADT and Pentair in accordance with the terms of the 2007 and 2012 Separation and Distribution Agreements and the Tax Sharing Agreements. The guarantees primarily relate to certain contingent tax liabilities included in the Tax Sharing Agreements. At the time of the 2007 and 2012 Separations, we recorded liabilities necessary to recognize the fair value of such guarantees and indemnifications. See Note 6 to the unaudited Consolidated Financial Statements for further discussion of the Tax Sharing Agreement. In addition, prior to the 2007 and 2012 Separations we provided support in the form of financial and/or performance guarantees to various Covidien, TE Connectivity, ADT and Tyco Flow Control operating entities. To the extent these guarantees were not assigned in connection with the 2007 and 2012 Separations, we remained as the guarantor, but were typically indemnified by the former subsidiary. See Note 18 to the unaudited Consolidated Financial Statements for a discussion of these liabilities.
In disposing of assets or businesses, we often provide 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. We have no reason to believe that these uncertainties would have a material adverse effect on our financial position, results of operations or cash flows. We have recorded liabilities for known indemnifications included as part of environmental liabilities. See Note 11 to the unaudited Consolidated Financial Statements for a discussion of these liabilities.
In the normal course of business, we are liable for contract completion and product performance. We record estimated product warranty costs at the time of sale. In the opinion of management, such obligations will not significantly affect our financial position, results of operations or cash flows.
For a detailed discussion of guarantees and indemnifications, see Note 18 to the unaudited Consolidated Financial Statements.

Non-U.S. GAAP Measure
In an effort to provide investors with additional information regarding our results as determined by U.S. GAAP, we also disclose the non-U.S. GAAP measure of organic revenue growth (decline). We believe that this measure is useful to investors in evaluating our operating performance for the periods presented. When read in conjunction with our U.S. GAAP revenue, it enables investors to better evaluate our operations without giving effect to, among other things, fluctuations in foreign exchange rates, which may be significant from period to period. In addition, organic revenue growth (decline) is a factor we use in internal evaluations of the overall performance of our business. This measure is not a financial measure under U.S. GAAP and should not be considered as a substitute for revenue as determined in accordance with U.S. GAAP, and it may not be comparable to similarly titled measures reported by other companies. Organic revenue growth (decline) presented herein is defined as revenue growth (decline) excluding the effects of foreign currency fluctuations, acquisitions and divestitures and other changes that may not reflect underlying results and trends. Our organic growth (decline) calculations incorporate an estimate of prior year reported net revenue associated with acquired entities that have been fully integrated within the first year, and exclude prior year net revenue associated with entities that do not meet the criteria for discontinued operations which have been divested within the past year ("adjusted number"). We calculate the rate of organic growth (decline) based on the adjusted number to better reflect the rate of growth (decline) of the combined business, in the case of acquisitions, or the remaining business, in the case of dispositions. We base the rate of organic growth (decline) for acquired businesses that are not fully integrated within the first year upon unadjusted historical revenue. Foreign currency fluctuations are calculated by subtracting (i) the U.S. dollar equivalent of local currencies for the current period using monthly weighted average exchange rates for the prior period from (ii) the U.S. dollar equivalent of local currencies

58

for the current period using monthly weighted average exchange rates for the current period. We may use organic revenue growth (decline) as a component of our compensation programs.
The table below details the components of organic revenue growth (decline) and reconciles the non-U.S. GAAP measure to U.S. GAAP net revenue growth (decline).

Third Quarter of Fiscal 2013
 
Net Revenue for the Quarter Ended June 29, 2012
 
Base Year
Adjustments
(Divestitures)
 
Adjusted
Fiscal 2012
Base Revenue
 
Foreign
Currency
 
Acquisitions
 
Other(2)
 
Organic
Revenue(1)
 
Organic
Growth
Percentage
 
Net Revenue for the Quarter Ended
June 28, 2013
 
($ in millions)
NA Installation & Services
$
1,005

 
$
(11
)
 
$
994

 
$
(2
)
 
$
1

 
$
—

 
$
(27
)
 
(2.7
)%
 
$
966

ROW Installation & Services
1,087

 
—

 
1,087

 
(13
)
 
20

 
—

 
18

 
1.7
 %
 
1,112

Global Products
563

 
1

 
564

 
(1
)
 
—

 
11

 
26

 
4.6
 %
 
600

Total Net Revenue
$
2,655

 
$
(10
)
 
$
2,645

 
$
(16
)
 
$
21

 
$
11

 
$
17

 
0.6
 %
 
$
2,678

_______________________________________________________________________________

(1) 
Organic revenue growth percentage based on adjusted 2012 base revenue.
(2) 
Amount represents contractual revenue from ADT under the 2012 Separation and Distribution Agreement which is excluded from the organic revenue calculation.
Nine Months Ended June 28, 2013
 
Net Revenue for the Nine Months Ended
June 29, 2012
 
Base Year
Adjustments
(Divestitures)
 
Adjusted
Fiscal 2012
Base Revenue
 
Foreign
Currency
 
Acquisitions
 
Other(2)
 
Organic
Revenue(1)
 
Organic
Growth
Percentage
 
Net Revenue for the Nine Months Ended
June 28, 2013
 
($ in millions)
NA Installation & Services
$
2,920

 
$
(11
)
 
$
2,909

 
$
2

 
$
5

 
$
—

 
$
(21
)
 
(0.7
)%
 
$
2,895

ROW Installation & Services
3,213

 
(10
)
 
3,203

 
(20
)
 
66

 
—

 
30

 
0.9
 %
 
3,279

Global Products
1,542

 
1

 
1,543

 
1

 
54

 
28

 
86

 
5.6
 %
 
1,712

Total Net Revenue
$
7,675

 
$
(20
)
 
$
7,655

 
$
(17
)
 
$
125

 
$
28

 
$
95

 
1.2
 %
 
$
7,886

_______________________________________________________________________________

(1) 
Organic revenue growth percentage based on adjusted 2012 base revenue.
(2) 
Amount represents contractual revenue from ADT under the 2012 Separation and Distribution Agreement which is excluded from the organic revenue calculation.

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 future events, including sales, earnings, cash flows, operating and tax efficiencies, product expansion, backlog, the consummation and benefits of acquisitions and divestitures, as well as financings and repurchases of debt or equity securities, are subject to known and unknown risks, uncertainties and contingencies. Many of

59

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, and overall demand for Tyco's goods and services;
•
economic and competitive conditions in the industries, end markets and regions served by our businesses;
•
changes in legal and tax requirements (including tax rate changes, new tax laws or treaties and revised tax law interpretations);
•
results and consequences of Tyco's internal investigations and governmental investigations concerning the Company's governance, management, internal controls and operations including its business operations outside the United States;
•
the outcome of litigation, arbitrations and governmental proceedings;
•
effect of income tax audit settlements and appeals;
•
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, or other consequences of volatility in the capital or credit markets;
•
other capital market conditions, including availability of funding sources and currency exchange rate fluctuations;
•
availability of and fluctuations in the prices of key raw materials;
•
changes affecting customers or suppliers;
•
economic and political conditions in international markets, including governmental changes and restrictions on the ability to transfer capital across borders;
•
our ability to achieve anticipated cost savings;
•
our ability to execute our portfolio refinement and acquisition strategies, including successfully integrating acquired operations;
•
potential impairment of our goodwill, intangibles and/or our long-lived assets;
•
our ability to realize the intended benefits of the 2012 Separation, including the integration of our commercial security and fire protection businesses;
•
other risks associated with the 2012 Separation, for example the risk that we may be liable for certain contingent liabilities of the spun-off entities if they were to become insolvent;
•
risks associated with our Swiss incorporation, including the possibility of reduced flexibility with respect to certain aspects of capital management and corporate governance, increased or different regulatory burdens, and the possibility that we may not realize anticipated tax benefits;
•
the possible effects of future legislation in the United States that may limit or eliminate potential U.S. tax benefits resulting from Tyco International's Swiss incorporation or deny U.S. government contracts to Tyco based upon its Swiss incorporation; and
•
natural events such as severe weather, fires, floods and earthquakes, or acts of terrorism.

60

Item 3.    Quantitative and Qualitative Disclosures About Market Risk
The Company's exposure to market risk from changes in interest rates, foreign currency exchange rates and commodity prices has not changed materially from our exposure discussed in the 2012 Form 10-K. In order to manage the volatility relating to our more significant market risks, we may enter into forward foreign currency exchange contracts, interest rate swaps and commodity swaps. As of and during the nine months ended June 28, 2013, the Company did not hold or enter into any commodity swaps or interest rate swaps.
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 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 strong investment grade long-term credit ratings.
Item 4.    Controls and Procedures
The Company, under the supervision and with the participation of its management, including its Chief Executive Officer and Chief Financial Officer, carried out an evaluation of the effectiveness of the design and operation of its disclosure controls and procedures (as such term is defined under Rule 13a-15 of the Securities and Exchange Act (the Exchange Act)) as of the end of the period covered by this report. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of June 28, 2013, the Company's disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed in the reports that the Company files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the applicable rules and forms, and that it is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
There has been no change in our internal control over financial reporting during the quarter ended June 28, 2013 that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting.

61

PART II. OTHER INFORMATION
Item 1.    Legal Proceedings
Legacy Matters Related to Former Management
Tyco is a party to several lawsuits involving disputes with former management, including its former chief executive officer, Mr. L. Dennis Kozlowski, and its former chief financial officer, Mr. Mark Swartz. The Company has filed civil complaints against Mr. Kozlowski and Mr. Swartz for breach of fiduciary duty and other wrongful conduct relating to alleged abuses of the Company's Key Employee Loan Program and relocation program, unauthorized bonuses, unauthorized payments, self dealing transactions and other improper conduct. In connection with Tyco's affirmative actions against Mr. Kozlowski and Mr. Swartz, Mr. Kozlowski, through counterclaims, and Mr. Swartz, through a separate lawsuit, sought an aggregate of approximately $140 million allegedly due in connection with their compensation and retention arrangements and under the Employee Retirement Income Security Act ("ERISA"). A former director, Mr. Frank Walsh Jr. sought indemnification for legal and other expenses incurred by him in connection with the Company's affirmative action against him for breaches of fiduciary duties.
With respect to Mr. Kozlowski, on December 1, 2010, the U.S. District Court for the Southern District of New York ruled in favor of several of the Company's affirmative claims against him before trial, while dismissing all of Mr. Kozlowski's counterclaims for pay and benefits after 1995. Prior to the commencement of trial scheduled for August 2012, the parties reached an agreement in principle to resolve the matter, with Mr. Kozlowski agreeing to release the Company from any claims to monetary amounts related to compensation, retention or other arrangements alleged to have existed between him and the Company. Although the parties have reached an agreement in principle, until the settlement agreement is signed, the Company will continue to maintain the amounts recorded in its Consolidated Balance Sheet, which reflect a net liability of approximately $91 million, for the amounts allegedly due under his compensation and retention arrangements and under ERISA.
With respect to Mr. Swartz, on March 3, 2011, the U.S. District Court for the Southern District of New York granted Tyco's motion for summary judgment as to liability for its affirmative actions and further ruled that issues related to damages would need to be resolved at trial. During the second quarter of fiscal 2012, the Company reversed a $50 million liability related to Mr. Swartz's pay and benefits due to the expiration of the statute of limitations, which was recorded in selling, general and administrative expenses in the Consolidated Statement of Operations. On May 15, 2012, Mr. Swartz filed a lawsuit against Tyco in New York state court claiming entitlement to monies under ERISA. The Company removed the case to the U.S. District Court for the Southern District of New York and filed a motion to dismiss Mr. Swartz's claims for multiple reasons, including that the statute of limitations had expired, at the latest, during the second quarter of fiscal 2012. A trial to determine the Company's damages from Mr. Swartz's breaches of fiduciary duty concluded on October 17, 2012. At the conclusion of the trial, the Court ruled that the Company was entitled to recover all monies earned by Mr. Swartz in connection with his employment by Tyco between September 1, 1995 and June 1, 2002. The Company filed a motion requesting the entry of monetary sum certain judgment in conformity with the Court's ruling regarding the time period of disgorgement. The motion also requested interest related to the monies Mr. Swartz was found to have unlawfully taken from the Company. In March 2013, the Court entered an order awarding the Company's request for interest. In connection with Mr. Swartz's affirmative claims against the Company, the Court dismissed all of Mr. Swartz's claims except one claim in which Mr. Swartz contends he is entitled to reimbursement from the Company for taxes he paid in connection with his 2002 Separation Agreement. In July 2013, the parties reached an agreement in principle to resolve the matter, with Mr. Swartz agreeing to release the Company from any claims to monetary amounts related to compensation, retention or other arrangements alleged to have existed between him and the Company. Although the parties have reached an agreement in principle, a final settlement agreement has not yet been executed.
With respect to Mr. Walsh, in June 2002, the Company filed a civil complaint against him for breach of fiduciary duty, inducing breaches of fiduciary duty and related wrongful conduct involving a $20 million payment by Tyco, $10 million of which was paid to Mr. Walsh with the balance paid to a charity of which Mr. Walsh is trustee. The payment was purportedly made for Mr. Walsh's assistance in arranging the Company's acquisition of The CIT Group, Inc. In October 2010, the U.S. District Court for the Southern District of New York denied the Company's affirmative claims for recovery of damages against Mr. Walsh. In January 2012, the United States Court of Appeals for the Second Circuit reversed the District Court's ruling that Tyco's Board of Directors could ratify breaches of fiduciary duties owed by Mr. Walsh to Tyco's shareholders, and remanded the case to the District Court to resolve certain issues relating to consequential damages. On June 20, 2012, the District Court ruled in Tyco's favor and entered a judgment against Mr. Walsh. Separately, Mr. Walsh filed a New York state court claim against the Company asserting his entitlement to indemnification. In March 2013, Mr. Walsh and the Company entered into a settlement agreement resolving all claims they had against each other related to these lawsuits with no payments made by either party.

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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 28, 2013, Tyco concluded that it was probable that it would incur remaining remediation and monitoring costs in the range of approximately $89 million to $176 million. As of June 28, 2013, Tyco concluded that the best estimate within this range is approximately $122 million, of which $69 million is included in Accrued and other current liabilities and $53 million is included in Other liabilities in the Company's Consolidated Balance Sheet.
The majority of the liabilities described above relate to ongoing remediation efforts at a facility in the Company's Global Products segment located in Marinette, Wisconsin, which the Company acquired in 1990 in connection with its acquisition of, among other things, the Ansul product line. Prior to Tyco's acquisition, Ansul manufactured arsenic-based agricultural herbicides at the Marinette facility, which resulted in significant arsenic contamination of soil and groundwater on the Marinette site and in parts of the adjoining Menominee River. Ansul has been engaged in ongoing remediation efforts at the Marinette site since 1990, and in February 2009 entered into an Administrative Consent Order (the "Consent Order") with the U.S. Environmental Protection Agency to address the presence of arsenic at the Marinette site. Under this agreement, Ansul's principal obligations are to contain the arsenic contamination on the site, pump and treat on-site groundwater, dredge, treat and properly dispose of contaminated sediments in the adjoining river areas, and monitor contamination levels on an ongoing basis. Activities completed under the Consent Order since 2009 include the installation of a subsurface barrier wall around the facility to contain contaminated groundwater, the installation of a groundwater extraction and treatment system and the dredging and offsite disposal of treated river sediment. As a result of treatability studies concluded during the second quarter of fiscal 2013, the Company became aware that additional river sediment beyond what was originally planned would require treatment by November 1, 2013, the deadline imposed under the Consent Order for river sediment remediation. This has caused the Company to increase its agreed upon remedial activities through the fall of 2013 in order to achieve compliance with the Consent Order. As a result of the increased level of remediation required, the Company recorded a charge of approximately $94 million during the second quarter of fiscal 2013 which it recorded in Selling, general and administrative expenses in the Consolidated Statement of Operations. As of June 28, 2013, the Company concluded that it was probable that its remaining remediation and monitoring costs related to the Marinette facility were in the range of approximately $80 million to $155 million. The Company's best estimate within that range is approximately $111 million, of which $67 million is included in Accrued and other current liabilities and $44 million is included in Other liabilities in the Company's Consolidated Balance Sheet. During the quarter and nine months ended June 28, 2013, the Company recorded nil and $100 million, respectively, in Selling, general and administrative expenses in the Consolidated Statement of Operations. The Company recorded $13 million during both the quarter and nine months ended June 29, 2012 within Selling, general and administrative expenses in the Consolidated Statement of Operations. Since fiscal 2009, the year in which the Company received the Consent Order, the Company has incurred environmental remediation costs net of insurance recoveries of $132 million, of which $16 million were incurred during fiscal 2012. Although the Company has recorded its best estimate of the costs that it will incur to remediate and monitor the arsenic contamination at the Marinette facility, it is possible that technological, regulatory or enforcement developments, the results of environmental studies or other factors could change the Company's expectations with respect to future charges and cash outlays, and such changes could be material to the Company's future results of operations, financial condition or cash flows.
Asbestos Matters
The Company and certain of its subsidiaries along with numerous other companies are named as defendants in personal injury lawsuits based on alleged exposure to asbestos containing materials. These cases typically involve product liability claims based primarily on allegations of manufacture, sale or distribution of industrial products that either contained asbestos or were attached to or used with asbestos containing components manufactured by third parties. Each case typically names between dozens to hundreds of corporate defendants. While the Company has observed an increase in the number of these lawsuits over the past several years, including lawsuits by plaintiffs with mesothelioma related claims, a large percentage of these suits have not presented viable legal claims and, as a result, have been dismissed by the courts. The Company's historical strategy has been to mount a vigorous defense aimed at having unsubstantiated suits dismissed, and, where appropriate, settling suits before trial. Although a large percentage of litigated suits have been dismissed, the Company cannot predict the extent to which it will be successful in resolving lawsuits in the future. In addition, the Company continues to assess its strategy for resolving asbestos claims. Due to the number of claims and limited amount of assets held by Yarway Corporation ("Yarway"), one of the Company's indirect subsidiaries, on April 22, 2013 Yarway filed a voluntary petition for relief under Chapter 11 of the U.S. Bankruptcy Code in the United States Bankruptcy Court for the District of Delaware. As a result of this filing, all asbestos claims against Yarway have been stayed pending confirmation of a plan of reorganization by the Bankruptcy Court. Yarway's goal is to negotiate, obtain approval of, and consummate a plan of reorganization that establishes an appropriately funded trust to provide for the fair and equitable payment of legitimate current and future Yarway asbestos claims,

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accompanied by appropriate injunctive relief permanently protecting Yarway and certain other protected parties from any further asbestos claims arising from products manufactured, sold, and/or distributed by Yarway. Upon confirmation of such plan of reorganization, the Company expects to deconsolidate Yarway. As a result of filing the voluntary petition during the quarter, the Company recorded an expected loss upon deconsolidation of $10 million related to the Yarway bankruptcy petition. Although the terms of Yarway's plan of reorganization are unknown at this time, the Company does not expect them to have a material adverse effect on the Company's results of operations, financial condition or liquidity.
As of June 28, 2013, the Company has determined that there were approximately 5,400 claims pending against it, its subsidiaries or entities for which the Company has assumed responsibility in connection with acquisitions and divestitures. This amount reflects the Company's current estimate of the number of viable claims made against such entities and includes adjustments for claims that are not actively being prosecuted, identify incorrect defendants, are duplicative of other actions or for which the Company is indemnified.
The Company's estimate of its liability and corresponding insurance recovery for pending and future claims and defense costs is based on the Company's historical claim experience, and estimates of the number and resolution cost of potential future claims that may be filed. The Company's legal strategy for resolving claims also impacts these estimates. The Company considers various trends and developments in evaluating the period of time (the look-back period) over which historical claim and settlement experience is used to estimate and value claims reasonably projected to be made in the future during a defined period of time (the look-forward period). On a quarterly basis, Tyco assesses the sufficiency of its estimated liability for pending and future claims and defense costs by evaluating actual experience regarding claims filed, settled and dismissed, and amounts paid in settlements. In addition to claims and settlement experience, Tyco considers additional quantitative and qualitative factors such as changes in legislation, the legal environment, and the Company's defense strategy. Tyco also evaluates the recoverability of its insurance receivable on a quarterly basis. The Company evaluates all of these factors and determines whether a change in the estimate of its liability for pending and future claims and defense costs or insurance receivable is warranted.
During the third quarter of fiscal 2012, the Company determined that a look-back period of three years was more appropriate than a five year period because the Company had experienced a higher and more consistent level of claims activity and settlement costs in the past three years. As a result, the Company believes a three year look-back period is more representative of future claim and settlement activity than the five year period it previously used. The Company also revised its look-forward period from seven years to fifteen years. The Company's decision to revise its look- forward period was primarily based on improvements in the consistency of observable data and the Company's more extensive experience with asbestos claims since the look-forward period was originally established in 2005. The revisions to the Company's look-forward and look-back periods do not apply to claims made against Yarway. Excluding these claims, the Company believes it can make a more reliable estimate of pending and future claims beyond seven years. The Company believes valuation of pending claims and future claims to be filed over the next fifteen years produces a reasonable estimate of its asbestos liability, which it records in the unaudited consolidated financial statements on an undiscounted basis. The effect of the change in our look-back and look-forward periods reduced income from continuing operations before income taxes and net income by approximately $90 million and $55 million, respectively. In addition, the effect of the change increased the Company's basic and diluted loss from continuing operations by $0.12 per share and decreased the Company's basic and diluted net income by $0.12 per share.
The Company's estimate of asbestos related insurance recoveries represents estimated amounts due to the Company for previously paid and settled claims and the probable reimbursements relating to its estimated liability for pending and future claims. In determining the amount of insurance recoverable, the Company considers a number of factors, including available insurance, allocation methodologies, and the solvency and creditworthiness of insurers. During the fourth quarter of fiscal 2012, the Company reached an agreement with one of its primary insurance carriers for asbestos related claims. Under the terms of the settlement, the Company agreed with the insurance carrier to accept a lump sum cash payment of $97 million in respect of certain policies, and has reached a coverage-in-place agreement with the insurance carrier with respect to certain claims. Upon receipt of the payments from the insurance carrier in the first quarter of fiscal 2013, the Company terminated a cost-sharing agreement that it had entered into with an entity that it had acquired a business from several decades ago and as a result, has access to all of the insurance policies and is responsible for all liabilities arising from asbestos claims made against the subsidiary that was acquired.
As of June 28, 2013, the Company's estimated net liability of $176 million was recorded within the Company's Consolidated Balance Sheet as a liability for pending and future claims and related defense costs of $328 million, and separately as an asset for insurance recoveries of $152 million. The Company believes that its asbestos related liabilities and insurance related assets as of June 28, 2013 are appropriate. Similarly, as of September 28, 2012, the Company's estimated net liability of $155 million was recorded within the Company's Consolidated Balance Sheet as a liability for pending and future claims and related defense costs of $401 million, and separately as an asset for insurance recoveries of $246 million.

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The net liabilities reflected in the Company's Consolidated Balance Sheet represent the Company's best estimates of probable losses for the look-forward periods described above. It is reasonably possible that losses will be incurred for claims made subsequent to such look-forward periods. However, due to the inherent uncertainty and lack of reliable trend data in predicting losses beyond 2027, the Company is unable to reasonably estimate the amount of losses beyond such date. With respect to claims made against Yarway, the Company is unable to reasonably estimate losses beyond what it has accrued because it is uncertain what the impact of Yarway's reorganization plan under Chapter 11 of the Bankruptcy Code will be on the Company. However, the Company does not expect the impact to be materially adverse to its financial condition, results of operations or liquidity.
The amounts recorded by the Company for asbestos-related liabilities and insurance-related assets are based on the Company's strategies for resolving its asbestos claims, currently available information, and a number of estimates and assumptions. Key variables and assumptions include the number and type of new claims that are filed each year, the average cost of resolution of claims, the resolution of coverage issues with insurance carriers, amount of insurance and the solvency risk with respect to the Company's insurance carriers. Many of these factors are closely linked, such that a change in one variable or assumption will impact one or more of the others, and no single variable or assumption predominately influences the determination of the Company's asbestos-related liabilities and insurance-related assets. Furthermore, predictions with respect to these variables are subject to greater uncertainty in the later portion of the projection period. Other factors that may affect the Company's liability and cash payments for asbestos-related matters include uncertainties surrounding the litigation process from jurisdiction to jurisdiction and from case to case, reforms of state or federal tort legislation and the applicability of insurance policies among subsidiaries. As a result, actual liabilities or insurance recoveries could be significantly higher or lower than those recorded if assumptions used in the Company's calculations vary significantly from actual results.
For a detailed discussion of asbestos-related matters, see Note 11 of the unaudited Consolidated Financial Statements.
Income Tax Matters
Tyco and its subsidiaries' income tax returns are examined periodically by various tax authorities. In connection with these examinations, tax authorities, including the IRS, have raised issues and proposed tax adjustments, in particular with respect to years preceding the 2007 Separation. The issues and proposed adjustments related to such years are generally subject to the sharing provisions of a tax sharing agreement entered in 2007 with Covidien and TE Connectivity (the "2007 Tax Sharing Agreement") under which Tyco, Covidien and TE Connectivity share 27%, 42% and 31%, respectively, of shared income tax liabilities that arise from adjustments made by tax authorities to Tyco's, Covidien's and TE Connectivity's U.S. and certain non-U.S. income tax returns. The costs and expenses associated with the management of these shared tax liabilities are generally shared equally among the parties. Tyco has previously disclosed that in connection with U.S. federal tax audits, the IRS has raised a number of issues and proposed tax adjustments for periods beginning with the 1997 tax year. Although Tyco has been able to resolve substantially all of the issues and adjustments proposed by the IRS for tax years through 2007, it has not been able to resolve matters related to the treatment of certain intercompany debt transactions during the period. As a result, on June 20, 2013, Tyco received Notices of Deficiency from the IRS asserting that several of Tyco's former U.S. subsidiaries owe additional taxes of $883.3 million plus penalties of $154 million based on audits of the 1997 through 2000 tax years of Tyco and its subsidiaries as they existed at that time. In addition, Tyco received Final Partnership Administrative Adjustments for certain U.S. partnerships owned by former U.S. subsidiaries with respect to which an additional tax deficiency of approximately $30 million is expected to be asserted. These amounts exclude interest and do not reflect the impact on subsequent periods if the IRS position described below is ultimately proved correct.
The IRS asserted in the Notices of Deficiency that substantially all of Tyco's intercompany debt originated during the 1997 - 2000 period should not be treated as debt for U.S. federal income tax purposes, and has disallowed interest and related deductions recognized on U.S. income tax returns totaling approximately $2.9 billion. Tyco strongly disagrees with the IRS position and has filed petitions with the U.S. Tax Court contesting the IRS proposed adjustments. Tyco believes that it has meritorious defenses for its tax filings, that the IRS positions with regard to these matters are inconsistent with the applicable tax laws and existing Treasury regulations, and that the previously reported taxes for the years in question are appropriate.
No payments with respect to these matters would be required until the dispute is definitively resolved, which, based on the experience of other companies, could take several years. Tyco believes that its income tax reserves and the liabilities recorded in the Consolidated Balance Sheet for the tax sharing agreements continue to be appropriate. However, the ultimate resolution of these matters, and the impact of that resolution, are uncertain and could have a material impact on Tyco's financial condition, results of operations and cash flows. In particular, if the IRS is successful in asserting its claim, it would have an adverse impact on interest deductions related to the same intercompany debt in subsequent time periods, totaling approximately $6.6 billion, which is expected to be disallowed by the IRS.
See Note 6 for additional information related to income tax matters

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Compliance Matters
As previously reported in the Company's periodic filings, in the fourth fiscal quarter of 2012, the Company settled with the Department of Justice ("DOJ") and the SEC charges related to alleged improper payments made by the Company's subsidiaries and agents in recent years, and agreed to pay approximately $26 million in fines, disgorgement and prejudgment interest to the DOJ and SEC, which the Company had previously reserved in the fourth quarter of fiscal 2011. The Company paid the DOJ approximately $13 million in the first quarter of fiscal 2013 and paid approximately $13 million to the SEC in the third quarter of fiscal 2013.
Covidien and TE Connectivity agreed, in connection with the 2007 Separation, to cooperate with the Company in its responses regarding these matters, and agreed that liabilities primarily related to the former Healthcare and Electronics businesses of the Company would be assigned to Covidien and TE Connectivity, respectively. As a result, Covidien and TE Connectivity have agreed to contribute approximately $5 million and immaterial amounts, respectively, toward the aforementioned $26 million.
Other Matters
During the third quarter of fiscal 2013, an adverse judgment was entered by the United States District Court for the District of Colorado regarding an insurance claim made on behalf of Sonitrol Corporation, a former subsidiary of the Company, for insurance coverage for damages arising from a burglary and fire occurring at a warehouse monitored by Sonitrol in December 2002. The judgment reversed the District Court's prior finding that Sonitrol's actions were not the type of conduct that was uninsurable based on public policy grounds. As a result, the Company reversed an insurance receivable of $26.5 million within Selling, general and administrative expenses in the Consolidated Statement of Operations during the quarter ended June 28, 2013. The Company is appealing the District Court's ruling to the United States Circuit Court for the Tenth Circuit and will retry the underlying damages action against Sonitrol in Colorado state court.
In addition to the foregoing, the Company is subject to claims and suits, including from time to time, contractual disputes and product and general liability claims, incidental to present and former operations, acquisitions and dispositions. With respect to many of these claims, the Company either self-insures or maintains insurance through third-parties, with varying deductibles. While the ultimate outcome of these matters cannot be predicted with certainty, the Company believes that the resolution of any such proceedings, whether the underlying claims are covered by insurance or not, will not have a material adverse effect on the Company's financial condition, results of operations or cash flows beyond amounts recorded for such matters.
Item 1A.    Risk Factors
Tyco's significant business risks are described in Part I, Item 1A in our 2012 Form 10-K, to which reference is made herein. Management does not believe that there have been any significant changes in the Company's risk factors since the Company filed the 2012 Form 10-K.
Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds
Issuer Purchases of Equity Securities
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 Approximate
Dollar Value of
Shares that May
Yet Be Purchased
Under Publicly Announced
Plans or Programs
3/30/2013 - 4/26/2013
578,967

 
$
31.58

 
—

 

4/27/2013 - 5/31/2013
3,090,390

 
32.48

 
3,079,118

 

6/1/2013 - 6/28/2013
187

 
31.90

 
—

 
 $ 499,945,806
The transactions described in the table above represent the repurchase of common shares on the New York Stock Exchange as part of the $600 million share repurchase program approved by the Board of Directors in January 2013 ("2013 Share Repurchase Program"). In addition, the Company also acquired shares from certain employees in order to satisfy

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employee tax withholding requirements in connection with the vesting of restricted shares. Approximately 590,500 shares were acquired in these vesting-related transactions outside of the share repurchase program during the quarter ended June 28, 2013. The average price paid per share is calculated by dividing the total cash paid for the shares by the total number of shares repurchased. As of June 28, 2013, approximately $500 million remained outstanding under the 2013 Share Repurchase Program.
Item 3.    Defaults Upon Senior Securities
None.
Item 4.    Mine Safety Disclosures
None.
Item 5.    Other Information
In reporting periods prior to the first quarter of fiscal 2013, certain costs of product sales were misclassified as costs of services. There was no impact to previously reported net revenue, operating income, income from continuing operations, net income, earnings per share or cash flow. No changes have been made to previously filed annual or interim financial statements as the effects in prior periods were not material. Although not material, corrections will be made to the relevant periods presented within the Company's Annual Report on Form 10-K for the fiscal year ended September 27, 2013. The following table sets forth the impact of corrections to the Company's Consolidated Statements of Operations as reported in the Company's Annual Report on Form 10-K for the fiscal years ended September 28, 2012, September 30, 2011 and September 24, 2010 and the Company's Quarterly Report on Form 10-Q for the interim period ended December 30, 2011.
 
For the Year Ended September 28, 2012
 
For the Year Ended September 30, 2011
 
For the Year Ended September 24, 2010
 
For the Quarter Ended December 30, 2011
 
As
Reported
 
Adjustments
 
As
Adjusted
 
As
Reported
 
Adjustments
 
As
Adjusted
 
As
Reported
 
Adjustments
 
As
Adjusted
 
As
Reported
 
Adjustments
 
As
Adjusted
Cost of product sales
$
3,298

 
$
679

 
$
3,977

 
$
3,542

 
$
651

 
$
4,193

 
$
4,392

 
$
515

 
$
4,907

 
$
769

 
$
166

 
$
935

Cost of services
3,328

 
(679
)
 
2,649

 
3,348

 
(651
)
 
2,697

 
3,012

 
(515
)
 
2,497

 
810

 
(166
)
 
644

Item 6.   Exhibits
Exhibit
Number
 
Exhibit
3.1

 
Articles of Association of Tyco International Ltd. (incorporated by reference to Exhibit 3.1 to Tyco International Ltd.'s Current Report on Form 8-K filed on May 17, 2013).
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).
101

 
Financial statements from the quarterly report on Form 10-Q of Tyco International Ltd. for the quarter ended June 28, 2013 formatted in XBRL: (i) the Consolidated Statements of Operations, (ii) the Consolidated Statements of Comprehensive Income, (iii) the Consolidated Balance Sheets, (iv) the Consolidated Statements of Cash Flows, (v) the Consolidated Statements of Shareholders' Equity, and (vi) the Notes to Unaudited Consolidated Financial Statements.

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

 
TYCO INTERNATIONAL LTD.
 
By:
/s/ Arun Nayar
 

Arun Nayar
 Executive Vice President
and Chief Financial Officer
(Principal Financial Officer)

Date: July 26, 2013

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