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