10-Q 1 tyc-20131227x10q.htm 10-Q TYC-2013.12.27-10Q
Table of Contents                                                                                        

 

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 December 27, 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 January 23, 2014 was 460,308,460.
 



TYCO INTERNATIONAL LTD.
INDEX TO FORM 10-Q

 
 
 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


Table of Contents                                            

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
 
December 27,
2013
 
December 28,
2012
Revenue from product sales
$
1,493

 
$
1,443

Service revenue
1,154

 
1,157

Net revenue
2,647

 
2,600

Cost of product sales
1,023

 
1,004

Cost of services
648

 
664

Selling, general and administrative expenses
599

 
682

Separation costs (see Note 2)

 
5

Restructuring and asset impairment charges, net (see Note 4)
3

 
10

Operating income
374

 
235

Interest income
3

 
4

Interest expense
(24
)
 
(24
)
Other expense, net
(1
)
 
(9
)
Income from continuing operations before income taxes
352

 
206

Income tax expense
(76
)
 
(39
)
Equity loss in earnings of unconsolidated subsidiaries
(4
)
 
(6
)
Income from continuing operations
272

 
161

Income from discontinued operations, net of income taxes

 
4

Net income
272

 
165

Less: noncontrolling interest in subsidiaries net income
2

 
2

Net income attributable to Tyco common shareholders
$
270

 
$
163

Amounts attributable to Tyco common shareholders:
 

 
 

Income from continuing operations
$
270

 
$
159

Income from discontinued operations

 
4

Net income attributable to Tyco common shareholders
$
270

 
$
163

Basic earnings per share attributable to Tyco common shareholders:
 

 
 

Income from continuing operations
$
0.58

 
$
0.34

Income from discontinued operations

 
0.01

Net income attributable to Tyco common shareholders
$
0.58

 
$
0.35

Diluted earnings per share attributable to Tyco common shareholders:
 

 
 

Income from continuing operations
$
0.57

 
$
0.34

Income from discontinued operations

 

Net income attributable to Tyco common shareholders
$
0.57

 
$
0.34

Weighted average number of shares outstanding:
 

 
 

Basic
464

 
466

Diluted
471

 
473

   See Notes to Unaudited Consolidated Financial Statements.

1

Table of Contents                                            

TYCO INTERNATIONAL LTD.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
(in millions)
 
For the Quarters Ended
 
December 27,
2013
 
December 28,
2012
Net income
$
272

 
$
165

Other comprehensive (loss) income, net of tax
 
 
 
Foreign currency translation
(37
)
 
11

Defined benefit and post retirement plans
3

 
4

Unrealized gain on marketable securities and derivative instruments

 
1

Total other comprehensive (loss) income, net of tax
(34
)
 
16

Comprehensive income
238

 
181

Less: comprehensive income attributable to noncontrolling interests
2

 
2

Comprehensive income attributable to Tyco common shareholders
$
236

 
$
179

   See Notes to Unaudited Consolidated Financial Statements.

2

Table of Contents                                            

TYCO INTERNATIONAL LTD.
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(in millions, except per share data)
 
December 27,
2013
 
September 27,
2013
Assets
 
 
 
Current Assets:
 
 
 
Cash and cash equivalents
$
479

 
$
563

Accounts receivable, less allowance for doubtful accounts of $81 and $83, respectively
1,725

 
1,738

Inventories
685

 
655

Prepaid expenses and other current assets
864

 
857

Deferred income taxes
254

 
254

Total Current Assets
4,007

 
4,067

Property, plant and equipment, net
1,678

 
1,677

Goodwill
4,528

 
4,519

Intangible assets, net
806

 
804

Other assets
994

 
1,109

Total Assets
$
12,013

 
$
12,176

Liabilities and Equity
 
 
 
Current Liabilities:
 
 
 
Loans payable and current maturities of long-term debt
$
180

 
$
20

Accounts payable
838

 
899

Accrued and other current liabilities
1,777

 
1,910

Deferred revenue
368

 
402

Total Current Liabilities
3,163

 
3,231

Long-term debt
1,443

 
1,443

Deferred revenue
392

 
400

Other liabilities
1,849

 
1,969

Total Liabilities
6,847

 
7,043

Commitments and Contingencies (see Note 11)


 

Redeemable noncontrolling interest
12

 
12

Tyco Shareholders' Equity:
 
 
 
Common shares CHF 0.50 par value, 825,222,070 shares authorized, 486,363,050 shares issued as of both December 27, 2013 and September 27, 2013
208

 
208

Common shares held in treasury, 26,217,435 and 22,902,706 shares as of December 27, 2013 and September 27, 2013, respectively
(1,031
)
 
(912
)
Contributed surplus
3,669

 
3,754

Accumulated earnings
3,305

 
3,035

Accumulated other comprehensive loss
(1,021
)
 
(987
)
Total Tyco Shareholders' Equity
5,130

 
5,098

Nonredeemable noncontrolling interest
24

 
23

Total Equity
5,154

 
5,121

Total Liabilities, Redeemable Noncontrolling Interest and Equity
$
12,013

 
$
12,176

   See Notes to Unaudited Consolidated Financial Statements.

3

Table of Contents                                            

TYCO INTERNATIONAL LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(in millions)
 
For the Quarters Ended
 
December 27,
2013
 
December 28,
2012
Cash Flows From Operating Activities:
 
 
 
Net income attributable to Tyco common shareholders
$
270

 
$
163

Noncontrolling interest in subsidiaries net income
2

 
2

Income from discontinued operations, net of income taxes

 
(4
)
Income from continuing operations
272

 
161

Adjustments to reconcile net cash provided by operating activities:
 
 
 
Depreciation and amortization
106

 
105

Non-cash compensation expense
15

 
14

Deferred income taxes
57

 
10

Provision for losses on accounts receivable and inventory
11

 
18

Legacy legal matters (see Note 11)
(92
)
 

Other non-cash items
16

 
6

Changes in assets and liabilities, net of the effects of acquisitions and divestitures:
 
 
 
Accounts receivable, net
14

 
(9
)
Contracts in progress
13

 
(2
)
Inventories
(32
)
 
(29
)
Prepaid expenses and other current assets
(59
)
 
31

Accounts payable
(44
)
 
(61
)
Accrued and other liabilities
(108
)
 
(228
)
Deferred revenue
(41
)
 
(47
)
Other
(5
)
 
(8
)
Net cash provided by (used in) operating activities
123

 
(39
)
Net cash provided by discontinued operating activities

 
4

Cash Flows From Investing Activities:
 
 
 
Capital expenditures
(92
)
 
(90
)
Proceeds from disposal of assets
4

 
3

Acquisition of businesses, net of cash acquired
(54
)
 
(23
)
Acquisition of dealer generated customer accounts and bulk account purchases
(11
)
 
(6
)
Sales and maturities of investments
112

 
11

Purchases of investments
(32
)
 
(91
)
Other
6

 
8

Net cash used in investing activities
(67
)
 
(188
)
Cash Flows From Financing Activities:
 
 
 
Proceeds from issuance of short-term debt
310

 

Repayment of short-term debt
(150
)
 

Proceeds from exercise of share options
40

 
46

Dividends paid
(74
)
 
(70
)
Repurchase of common shares by treasury
(250
)
 
(50
)
Transfer to discontinued operations

 
(29
)
Other
(9
)
 
(16
)
Net cash used in financing activities
(133
)
 
(119
)
Net cash provided by discontinued financing activities

 
29

Effect of currency translation on cash
(7
)
 
3

Net decrease in cash and cash equivalents
(84
)
 
(310
)
Less: net increase in cash and cash equivalents related to discontinued operations

 
33

Cash and cash equivalents at beginning of period
563

 
844

Cash and cash equivalents at end of period
$
479

 
$
501

   See Notes to Unaudited Consolidated Financial Statements.

4

Table of Contents                                            

TYCO INTERNATIONAL LTD.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (UNAUDITED)
For the Quarters Ended December 27, 2013 and December 28, 2012
(in millions)
 
Number of
Common Shares
 
Common
Shares at
Par Value
 
Treasury
Shares
 
Contributed
Surplus
 
Accumulated
Earnings
 
Accumulated
Other
Comprehensive
Loss

 
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
 

 
 

 
 

 
 

 
163

 
 

 
163

 
2

 
165

Other comprehensive income, net of tax
 

 
 

 
 

 
 

 
 

 
16

 
16

 
 
 
16

Dividends declared
 

 
 

 
 

 
(1
)
 
 

 
 

 
(1
)
 
 

 
(1
)
Shares issued from treasury for vesting of share based equity awards
6

 
 

 
247

 
(201
)
 
 

 
 

 
46

 
 

 
46

Repurchase of common shares
(2
)
 
 

 
(50
)
 
 

 
 

 
 

 
(50
)
 
 

 
(50
)
Compensation expense
 

 
 

 
 

 
14

 
 

 
 

 
14

 
 

 
14

Other
(1
)
 
 

 
(16
)
 
(40
)
 
 

 
 

 
(56
)
 


 
(56
)
Balance as of December 28, 2012
465

 
$
2,792

 
$
(913
)
 
$
1,535

 
$
2,662

 
$
(950
)
 
$
5,126

 
$
18

 
$
5,144


 
Number of
Common
Shares
 
Common
Shares at
Par Value
 
Treasury
Shares
 
Contributed
Surplus
 
Accumulated
Earnings
 
Accumulated
Other
Comprehensive
Loss

 
Total Tyco
Shareholders'
Equity
 
Nonredeemable
Noncontrolling
Interest
 
Total
Equity
Balance as of September 27, 2013
463

 
$
208

 
$
(912
)
 
$
3,754

 
$
3,035

 
$
(987
)
 
$
5,098

 
$
23

 
$
5,121

Comprehensive income:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income
 

 
 

 
 

 
 

 
270

 
 

 
270

 
2

 
272

Other comprehensive loss, net of tax
 
 
 
 
 
 
 
 
 
 
(34
)
 
(34
)
 
 
 
(34
)
Shares issued from treasury for vesting of share based equity awards
4

 
 

 
140

 
(100
)
 
 

 
 

 
40

 
 
 
40

Repurchase of common shares
(7
)
 
 

 
(250
)
 
 

 
 

 
 

 
(250
)
 
 
 
(250
)
Compensation expense
 

 
 

 
 

 
15

 
 

 
 

 
15

 
 
 
15

Other


 
 

 
(9
)
 


 
 

 


 
(9
)
 
(1
)
 
(10
)
Balance as of December 27, 2013
460

 
$
208

 
$
(1,031
)
 
$
3,669

 
$
3,305

 
$
(1,021
)
 
$
5,130

 
$
24

 
$
5,154

   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 27, 2013 (the "2013 Form 10-K").
References to 2014 and 2013 are to Tyco's fiscal quarters ending December 27, 2013 and December 28, 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 2014 and 2013 are both 52-week years.
Recently Adopted Accounting Pronouncements—In January 2013, the Financial Accounting Standards Board ("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 became effective for Tyco in the first quarter of fiscal 2014. The adoption of this guidance did not have a material impact on the Company's disclosures.
In February 2013, the FASB issued authoritative guidance for the reporting of amounts reclassified out of Accumulated other comprehensive income ("AOCI"). The amendment did not change the current requirements for reporting net income or Other comprehensive income ("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 became effective for Tyco in the first quarter of fiscal 2014 and additional disclosures are provided in Note 13.
Recently Issued Accounting Pronouncements—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.
In July 2013, the FASB issued authoritative guidance for the presentation of an unrecognized tax benefit when a net operating loss (“NOL”) carryforward, a similar tax loss, or a tax credit carryforward exists. The guidance requires an entity to present an unrecognized tax benefit, or a portion of an unrecognized tax benefit, in the financial statements as a reduction to a deferred tax asset for a NOL carryforward, a similar tax loss, or a tax credit carryforward. If the NOL carryforward, a similar tax loss, or a tax credit carryforward is not available at the reporting date under the tax law of the jurisdiction or the tax law of the jurisdiction does not require the entity to use, and the entity does not intend to use, the deferred tax asset for such purpose,

6

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


the unrecognized tax benefit will be presented in the financial statements as a liability and will not be combined with deferred tax assets. This guidance does not require any additional recurring disclosures and will be effective for Tyco the first fiscal quarter of fiscal 2015. The Company is currently assessing the impact, if any, the guidance will have upon adoption.
2.    2012 Separation Transaction
On September 28, 2012, the Company 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.
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 $15 million and $14 million during the quarters ended December 27, 2013 and December 28, 2012, respectively. The amounts presented within discontinued operations are costs directly related to the 2012 Separation that are not expected to provide a future benefit to the Company. The components of the Separation Charges incurred within continuing operations and discontinued operations consisted of the following ($ in millions):
 
For the Quarter Ended 
 December 27, 2013
 
For the Quarter Ended 
 December 28, 2012
 
Continuing
Operations
 
Discontinued
Operations
 
Total
 
Continuing
Operations
 
Discontinued
Operations
 
Total
Professional fees
$
1

 
$

 
$
1

 
$

 
$
3

 
$
3

Information technology related costs
3

 

 
3

 
2

 
2

 
4

Employee compensation costs

 

 

 

 
1

 
1

Marketing costs
10

 

 
10

 
14

 

 
14

Other
1

 

 
1

 
2

 
(10
)
 
(8
)
Total pre-tax separation charges (gain)
15

 

 
15

 
18

 
(4
)
 
14

Tax-related separation charges

 

 

 
4

 

 
4

Tax benefit on pre-tax separation charges                        
(6
)
 

 
(6
)
 
(5
)
 

 
(5
)
Total separation charges (gain), net of tax
$
9

 
$

 
$
9

 
$
17

 
$
(4
)
 
$
13

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
 
December 27, 2013
 
December 28, 2012
Selling, general and administrative expenses ("SG&A")
$
15

 
$
13

Separation costs

 
5

Total
$
15

 
$
18

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.
Fiscal 2014
During the quarter ended December 27, 2013, the Company completed the sale of its Armourguard business in New Zealand and its fire and security business in Fiji, both of which were in its ROW Installation & Services segment, for an immaterial amount. These businesses were accounted for as held for sale as of September 27, 2013, however, the assets and

7

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


liabilities have not been presented separately in the Consolidated Balance Sheets, and these businesses have not been presented in discontinued operations in the Consolidated Statements of Operations for all periods presented because the amounts were not material.
Fiscal 2013
On September 28, 2012, Tyco completed the 2012 Separation. See Note 2 for additional information. 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 transaction. 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 December 28, 2012, $40 million was recorded within the Consolidated Statement of Shareholders' Equity as Other, primarily related to a cash true-up adjustment paid to ADT. During the quarter ended December 27, 2013, there were no adjustments recorded within the Consolidated Statement of Shareholders' Equity. Any additional adjustments are not expected to be material.
Divestiture Gains, Net
For the quarter ended December 27, 2013, the Company recorded a net gain of $3 million in Selling, general and administrative expenses in the Company's Consolidated Statements of Operations, primarily related to a favorable judgment received with respect to a former business which was divested.
For the quarter ended December 28, 2012, the Company recorded a net gain of $3 million in Selling, general and administrative expenses in the Company's Consolidated Statements of Operations, primarily related to the favorable settlement of an indemnification resulting from the divestiture of the Company's Electrical and Metal Products business.
4.    Restructuring and Asset Impairment Charges, Net
During the first quarter of fiscal 2014, the Company identified and pursued opportunities for cost savings through restructuring activities and workforce reductions to improve operating efficiencies across the Company's businesses. The Company expects to incur restructuring and restructuring related charges in the range of $50 million to $75 million in fiscal 2014, which does not include repositioning charges as described below.
The Company recorded restructuring and asset impairment charges by action and Consolidated Statement of Operations classification as follows ($ in millions):
 
For the Quarters Ended
 
December 27, 2013
 
December 28, 2012
2014 actions
$
1

 
$

2013 actions
1

 
5

2012 and prior actions
1

 
5

Total
$
3

 
$
10

Charges reflected in restructuring and asset impairments, net
$
3

 
$
10


8

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


2014 Actions
Restructuring and asset impairment charges, net, during the quarter ended December 27, 2013 related to the 2014 actions are as follows ($ in millions):
 
For the Quarter Ended 
 December 27, 2013
 
Employee
Severance and
Benefits
ROW Installation & Services
1

Total
$
1

 
 
 
 
 
 
The rollforward of the reserves from September 27, 2013 to December 27, 2013 is as follows ($ in millions):
Balance as of September 27, 2013
$

Charges
1

Balance as of December 27, 2013
$
1

2013 Actions
Restructuring and asset impairment charges, net, during the quarter ended December 27, 2013 related to the 2013 actions are as follows ($ in millions):
 
For the Quarter Ended 
 December 27, 2013
 
Employee
Severance and
Benefits
 
Facility Exit
and Other
Charges
 
Total
NA Installation & Services
$
(1
)
 
$
1

 
$

ROW Installation & Services
(3
)
 

 
(3
)
Global Products
4

 

 
4

Total
$

 
$
1

 
$
1


 
For the Quarter Ended 
 December 28, 2012
 
Employee
Severance and
Benefits
 
Facility Exit
and Other
Charges
 
Total
ROW Installation & Services
$
2

 
$
1

 
$
3

Global Products
1

 

 
1

Corporate and Other
1

 

 
1

Total
$
4

 
$
1

 
$
5


9

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


Restructuring and asset impairment charges, net, incurred cumulative to date from initiation of the 2013 actions are as follows ($ in millions):
 
Employee
Severance and
Benefits
 
Facility Exit
and Other
Charges
 
Total
NA Installation & Services
$
33

 
$
2

 
$
35

ROW Installation & Services
43

 
4

 
47

Global Products
13

 
2

 
15

Corporate and Other
3

 

 
3

Total
$
92

 
$
8

 
$
100

The rollforward of the reserves from September 27, 2013 to December 27, 2013 is as follows ($ in millions):
Balance as of September 27, 2013
$
68

Charges
6

Reversals
(5
)
Utilization
(16
)
Balance as of December 27, 2013
$
53

2012 and prior actions
The Company continues to maintain restructuring reserves related to actions initiated prior to fiscal 2013. The total amount of these reserves was $56 million and $63 million as of December 27, 2013 and September 27, 2013, respectively. The Company incurred $1 million of restructuring charges, net and utilized $8 million for the quarter ended December 27, 2013. The Company incurred $5 million of restructuring charges, net for the quarter ended December 28, 2012 related to 2012 and prior actions. The aggregate remaining reserves primarily relate to facility exit costs for long-term non-cancelable lease obligations primarily within the Company's ROW Installation & Services segment.
Total Restructuring Reserves
As of December 27, 2013 and September 27, 2013, restructuring reserves related to all actions were included in the Company's Consolidated Balance Sheets as follows ($ in millions):
 
As of
 
December 27, 2013
 
September 27,
2013
Accrued and other current liabilities
$
92

 
$
113

Other liabilities
18

 
18

Total
$
110

 
$
131

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 ended December 27, 2013, the Company recorded repositioning charges of $6 million 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 the quarter ended December 28, 2012.

10

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


5.    Acquisitions
Acquisitions
During the quarter ended December 27, 2013, total consideration included in continuing operations was $57 million which was comprised of $54 million cash paid, net of $1 million cash acquired, and $2 million of contingent consideration which was entirely related to the acquisition of Westfire, Inc. ("Westfire") on November 8, 2013. Westfire, a fire protection services company with operations in the United States, Chile and Peru, provides critical special-hazard suppression and detection applications in mining, telecommunications and other vertical markets and will be integrated with the NA Installation & Services and ROW Installation & Services segments.
During the quarter ended December 28, 2012, cash paid for acquisitions included in continuing operations totaled $23 million, which is related to an acquisition within the Company's NA Installation & Services segment.
Acquisition and Integration Related Costs
Acquisition and integration costs are expensed as incurred. The Company incurred acquisition and integration costs of $1 million for both the quarters ended December 27, 2013 and December 28, 2012. 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 December 27, 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
2004-2013
Canada
2005-2013
Germany
2005-2013
South Korea
2006-2013
Switzerland
2004-2013
United Kingdom
2011-2013
United States
1997-2013
Based on the current status of its income tax audits, Tyco believes that it is reasonably possible that between nil and $35 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 December 27, 2013, Tyco recorded deferred tax assets of approximately $173 million, which is comprised of $2.2 billion gross deferred tax assets net of $2.0 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

11

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


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.
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

12

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


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. 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 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 December 27, 2013 and September 27, 2013, are as follows ($ in millions):
 
2012 Tax Sharing Agreement
 
2007 Tax Sharing Agreement
 
As of
 
As of
 
December 27, 2013
 
September 27, 2013
 
December 27, 2013
 
September 27, 2013
Net receivable:
 
 
 
 
 
 
 
Other assets

 

 
68

 
67

 

 

 
68

 
67

Tax sharing agreement related liabilities
 
 
 
 
 
 
 
Accrued and other current liabilities
(33
)
 
(33
)
 
(130
)
 
(130
)
Other liabilities
(36
)
 
(36
)
 
(254
)
 
(254
)
 
(69
)
 
(69
)
 
(384
)
 
(384
)
Net liability
$
(69
)
 
$
(69
)
 
$
(316
)
 
$
(317
)

13

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


Tyco recorded a loss in conjunction with the 2012 Tax Sharing Agreement within Other expense, net in the Consolidated Statements of Operations for the quarters ended December 27, 2013 and December 28, 2012 as follows ($ in millions):
 
For the Quarters Ended
 
December 27, 2013
 
December 28, 2012
Income (loss)
 
 
 
2012 Tax Sharing Agreement
$
(2
)
 
$
(10
)
Pursuant to the terms of the 2012 Separation and Distribution Agreement, Tyco, ADT and Pentair are each responsible for issuing their 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 ended December 27, 2013, Tyco incurred a charge of $3 million 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 $1 million to be received from ADT and Pentair for Company shares issued to their employees, resulting in a net impact of approximately $2 million.
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 
 December 27, 2013
 
For the Quarter Ended 
 December 28, 2012
 
Income
 
Shares
 
Per Share
Amount
 
Income
 
Shares
 
Per Share
Amount
Basic earnings per share attributable to Tyco common shareholders:
 
 
 
 
 
 
 
 
 
 
 
Income from continuing operations
$
270

 
464

 
$
0.58

 
$
159

 
466

 
$
0.34

Share options and restricted share awards
 
 
7

 
 
 
 
 
7

 
 
Diluted earnings per share attributable to Tyco common shareholders:
 
 
 
 
 
 
 
 
 
 
 
Income from continuing operations attributable to Tyco common shareholders, giving effect to dilutive adjustments
$
270

 
471

 
$
0.57

 
$
159

 
473

 
$
0.34

 
 
 
 
 
 
 
 
 
 
 
 
The computation of diluted earnings per share for the quarter ended December 27, 2013 excludes the effect of the potential exercise of share options to purchase approximately 2 million shares and excludes restricted stock units of approximately 1 million because the effect would be anti-dilutive. The computation of diluted earnings per share for the quarter ended December 28, 2012 excludes the effect of the potential exercise of share options to purchase approximately 7 million shares and excludes restricted stock units of 1 million because the effect would be anti-dilutive.

14

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


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 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

 
77

 
90

 
191

Transfers
(39
)
 

 
39

 

Currency Translation
(8
)
 
(30
)
 
(1
)
 
(39
)
As of September 27, 2013
 
 
 
 
 
 
 
Gross Goodwill
$
2,104

 
$
2,352

 
$
1,824

 
$
6,280

Impairments
(126
)
 
(1,068
)
 
(567
)
 
(1,761
)
Carrying Amount of Goodwill
1,978

 
1,284

 
1,257

 
4,519

Acquisitions/Purchase Accounting Adjustments
8

 
14

 

 
22

Currency Translation
(6
)
 
(6
)
 
(1
)
 
(13
)
As of December 27, 2013
 
 
 
 
 
 
 
Gross Goodwill
$
2,106

 
$
2,360

 
$
1,823

 
$
6,289

Impairments
(126
)
 
(1,068
)
 
(567
)
 
(1,761
)
Carrying Amount of Goodwill
$
1,980

 
$
1,292

 
$
1,256

 
$
4,528

The following table sets forth the gross carrying amount and accumulated amortization of the Company's intangible assets as of December 27, 2013 and September 27, 2013 ($ in millions):
 
As of
 
December 27, 2013
 
September 27, 2013
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Gross
Carrying
Amount
 
Accumulated
Amortization
Amortizable:
 
 
 
 
 
 
 
Contracts and related customer relationships
$
1,541

 
$
1,203

 
$
1,531

 
$
1,199

Intellectual property
623

 
479

 
623

 
477

Other
41

 
15

 
40

 
13

Total
$
2,205

 
$
1,697

 
$
2,194

 
$
1,689

Non-Amortizable:
 
 
 
 
 
 
 
Intellectual property
$
222

 
 

 
$
223

 
 
Franchise rights
76

 
 

 
76

 
 
Total
$
298

 
 

 
$
299

 
 
Intangible asset amortization expense for both quarters ended December 27, 2013 and December 28, 2012 was $25 million.
The estimated aggregate amortization expense on intangible assets is expected to be approximately $71 million for the remainder of 2014, $77 million for 2015, $70 million for 2016, $61 million for 2017, $229 million for 2018 and thereafter.

15

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


9.    Debt
Debt as of December 27, 2013 and September 27, 2013 is as follows ($ in millions):
 
As of
 
December 27,
2013
 
September 27,
2013
Commercial paper (1)
160

 

3.375% public notes due 2015
258

 
258

3.75% public notes due 2018
67

 
67

8.5% public notes due 2019
364

 
364

7.0% public notes due 2019
246

 
246

6.875% public notes due 2021
466

 
466

4.625% public notes due 2023
42

 
42

Other(1)(2)
20

 
20

Total debt
1,623

 
1,463

Less current portion
180

 
20

Long-term debt
$
1,443

 
$
1,443

_______________________________________________________________________________

(1) 
Commercial paper and $20 million of the amount shown as other, comprises the current portion of the Company's total debt as of December 27, 2013.
(2) 
$20 million of the amount shown as other, comprises the current portion of the Company's total debt as of September 27, 2013.
Fair Value
The carrying amount of Tyco's debt subject to the fair value disclosure requirements as of December 27, 2013 and September 27, 2013 was $1,603 million and $1,443 million, respectively. The Company has determined the fair value of such debt to be $1,808 million and $1,676 million as of December 27, 2013 and September 27, 2013, respectively. 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 available, the Company uses quoted market prices to determine the fair value of its debt that is traded in active markets. As of December 27, 2013 and September 27, 2013, the fair value of the Company's debt which was actively traded was $1,648 million and $1,676 million, respectively. As of December 27, 2013 and September 27, 2013, the Company's debt that was actively traded and subject to the fair value disclosure requirements is classified as Level 1 in the fair value hierarchy. Additionally, the Company believes the carrying amount of its commercial paper of $160 million as of December 27, 2013, approximates fair value based on the short-term nature of such debt.
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 billion as of December 27, 2013. As of December 27, 2013, TIFSA had $160 million of commercial paper outstanding, which bore interest at a weighted-average rate of 0.31%. As of September 27, 2013, TIFSA had no commercial paper outstanding.
Credit Facilities
The Company's committed revolving credit facility totaled $1 billion as of December 27, 2013. This revolving credit facility may be used for working capital, capital expenditures and general corporate purposes. As of December 27, 2013 there were no amounts drawn under the Company's revolving credit facility, although the Company had dedicated $160 million of availability to backstop outstanding commercial paper. As of September 27, 2013 there were no amounts drawn under the Company's revolving credit facility. Interest under the revolving credit facility is variable and is calculated by reference to LIBOR or an alternate base rate.

16

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


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 December 27, 2013 and September 27, 2013. 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 quarter ended December 27, 2013, the Company did not hold or enter into any commodity derivative instruments 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 quarters ended December 27, 2013 and December 28, 2012, the Company did not have any derivative instruments that were designated and qualified as hedging instrument for accounting purposes.
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. The fair value of these derivative financial instruments and impact of such changes in the fair value was not material to the Consolidated Balance Sheets as of December 27, 2013 and September 27, 2013 or Consolidated Statements of Operations and Statements of Cash Flows for the quarters ended December 27, 2013 and December 28, 2012. As of December 27, 2013 and September 27, 2013, the total gross notional amount of the Company's foreign exchange contracts was $322 million and $278 million, respectively.
Counterparty Credit Risk
The use of derivative financial instruments exposes the Company to 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. To further reduce the risk of loss, the Company generally enters into International Swaps and Derivatives Association master netting agreements with substantially all of its counterparties. 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. We do not anticipate any non-performance by any of our counterparties, and the concentration of risk with financial institutions does not present significant credit risk to the Company.
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.

17

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


Assets Measured at Fair Value on a Recurring Basis
The following table presents the Company's hierarchy for its assets measured at fair value on a recurring basis as of December 27, 2013 and September 27, 2013:
 
 
 
 
 
 
 
Consolidated Balance Sheet
Classification
 
As of December 27, 2013
 
Prepaids and
Other Current
Assets
 
Other Assets
($ in millions)
Level 1
 
Level 2
 
Total
 
Available-for-Sale Securities:
 
 
 
 
 
 
 
 
 
Corporate debt securities
$

 
$
27

 
$
27

 
$
8

 
$
19

U.S. Government debt securities
116

 
20

 
136

 
36

 
100

Total
$
116

 
$
47

 
$
163

 
$
44

 
$
119

 
 
 
 
 
 
 
Consolidated Balance Sheet
Classification
 
As of September 27, 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
171

 
38

 
$
209

 
89

 
120

Total
$
171

 
$
72

 
$
243

 
$
100

 
$
143

During the quarter ended December 27, 2013, the Company did not have any significant transfers between levels within the fair value hierarchy.
Other
The Company recorded a $7 million loss on the sale of an investment during the quarter ended December 27, 2013.
Additionally, the Company had $2 billion of intercompany loans designated as permanent in nature as of both December 27, 2013 and September 27, 2013, respectively. For the quarters ended December 27, 2013 and December 28, 2012, the Company recorded $12 million and $22 million of cumulative translation gain, respectively, through accumulated other comprehensive loss related to these loans.
11.    Commitments and Contingencies
Legacy Matters Related to Former Management
The Company has been 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 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").
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. In the first quarter of fiscal 2014, the parties signed an agreement resolving the matter, with Mr. Kozlowski agreeing to release the Company from any claims to monetary amounts related to compensation, retention or other arrangements, including the Key Employee Loan Program, alleged to have existed between him and the Company. As a result, in the first quarter of fiscal 2014, the Company reversed the net liability of approximately $92 million which was recorded in Selling, general and administrative expenses in the Consolidated Statement of Operations for the

18

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


amounts allegedly due to him. Additionally, Tyco will be entitled to a portion of the proceeds, if any, from the future sale of certain assets owned by Mr. Kozlowski, the timing and amount of which is uncertain at this time.
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.
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 December 27, 2013, Tyco concluded that it was probable that it would incur remedial costs in the range of approximately $42 million to $110 million. As of December 27, 2013, Tyco concluded that the best estimate within this range is approximately $74 million, of which $51 million is included in Accrued and other current liabilities and $23 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 of December 27, 2013, the Company concluded that its remaining remediation and monitoring costs related to the Marinette facility were in the range of approximately $31 million to $85 million. The Company's best estimate within that range is approximately $62 million, of which $48 million is included in Accrued and other current liabilities and $14 million is included in Other liabilities in the Company's Consolidated Balance Sheet. During the quarters ended December 27, 2013 and December 28, 2012, the Company recorded nil and $6 million in Selling, general and administrative expenses in the Consolidated Statement of Operations, respectively. 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.

19

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


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 third quarter of fiscal 2013, 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 December 27, 2013, the Company has determined that there were approximately 5,300 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 over a look-back period of three years, and estimates of the number and resolution cost of potential future claims that may be filed in the look-forward period of fifteen years. 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.
As of December 27, 2013, the Company's estimated net liability of $167 million was recorded within the Company's Consolidated Balance Sheet as a liability for pending and future claims and related defense costs of $319 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 December 27, 2013 are appropriate. Similarly, as of September 27, 2013, the Company's estimated net liability of $169 million was recorded within the Company's Consolidated Balance Sheet as a liability for pending and future claims and related defense costs of $321 million, and separately as an asset for insurance recoveries of $152 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 period 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 period. 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

20

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


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.
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.
Other Matters
During the first quarter of fiscal 2014, Tyco settled a tax dispute with its former subsidiary, CIT Group, Inc. ("CIT"). Under the terms of the settlement agreement, Tyco received $60 million during the quarter ended December 27, 2013 which is subject to the terms and conditions of the 2007 Tax Sharing Agreement. As a result, the Company recorded a $16 million gain

21

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


in Selling, general and administrative expenses in the Consolidated Statement of Operations and established payables of $25 million and $19 million due to Covidien and TE Connectivity, respectively, as of December 27, 2013. The Company expects to make payment to Covidien and TE Connectivity in the second quarter of fiscal 2014.
On December 18, 2013, the Supreme Court of the Republic of Korea issued a decision clarifying the definition of "ordinary wages," which in Korea form the basis for certain statutory entitlements due to workers upon the occurrence of specified events such as severance, disability and retirement. Although no lawsuit or claim has been asserted against the Company, the Company is currently assessing the impact, if any, the ruling as well as new guidelines related to the scope of ordinary wages issued by the Korean Ministry of Employment and Labor on January 23, 2014 may have on the Company. Although a risk of loss is reasonably possible, the Company is unable to reasonably estimate an amount or range of loss related to this matter at this time. Consequently, the Company has made no provision for the potential loss, if any. However, the Company does not believe the ultimate outcome of this matter will have a material adverse affect on its financial condition, results of operations or liquidity.
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
 
Non-U.S. Plans
 
For the Quarters Ended
 
For the Quarters Ended
 
December 27, 2013

 
December 28, 2012

 
December 27, 2013

 
December 28, 2012

Service cost
$
2

 
$
1

 
$
5

 
$
5

Interest cost
9

 
8

 
14

 
13

Expected return on plan assets
(12
)
 
(12
)
 
(18
)
 
(16
)
Amortization of net actuarial loss
2

 
4

 
3

 
2

Net periodic benefit cost
$
1

 
$
1

 
$
4

 
$
4

 
The estimated net actuarial loss for U.S. pension benefit plans that will be amortized from accumulated other comprehensive loss into net periodic benefit cost over the current fiscal year is expected to be $9 million. The estimated net actuarial loss for non-U.S. pension benefit plans that will be amortized from accumulated other comprehensive loss into net periodic benefit cost over the current fiscal year is expected to be $13 million. Amortization of net periodic benefit cost from accumulated other comprehensive loss for non-U.S. pension benefit plans is recorded in Selling, general and administrative expenses, Cost of product sales, or Cost of services in the Consolidated Statements of Operations, depending on the employee job classification.
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 2014 of $25 million for U.S. plans and $35 million for non-U.S. plans. During the quarter ended December 27, 2013, the Company made required contributions of $3 million to its U.S. pension plans and $11 million to its non-U.S. pension plans.
Postretirement Benefit Plans—Net periodic postretirement benefit cost was not material for both periods.

22

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


13.    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 third installment of $0.16 was paid on November 14, 2013 to shareholders of record on October 25, 2013. The fourth installment of $0.16 is to be paid on February 19, 2014 to shareholders of record on January 24, 2014.
On November 11, 2013, the Company's Board of Directors approved a cash dividend of $0.72 per common share, an $0.08 per common share increase, subject to shareholder approval at the annual general meeting in March 2014.
Share Repurchase Program
The Company's Board of Directors approved a $600 million share repurchase program ("2013 Share Repurchase Program") in January 2013. During the three months ended December 27, 2013, the Company repurchased approximately 7 million shares for approximately $250 million. As of December 27, 2013, approximately $250 million of share repurchase authority remained outstanding under the 2013 Share Repurchase Program.
Other Comprehensive (Loss) Income
Other Comprehensive (Loss) Income is comprised of the following:
($ in millions)
For the Quarters Ended
 
December 27,
2013
 
December 28,
2012
Foreign currency translation
(37
)
 
28

Liquidation of foreign entities (1)

 
(10
)
Income tax expense (2)

 
(7
)
Foreign currency translation, net of tax
(37
)
 
11

Amortization of net actuarial losses (3)
5

 
6

Income tax expense
(2
)
 
(2
)
Defined benefit and post retirement plans, net of tax
3

 
4

Unrealized loss on marketable securities and derivative instruments (4)

 
(1
)
Income tax benefit

 
2

Unrealized gain on marketable securities and derivative instruments, net of tax

 
1

Other comprehensive (loss) income, net of tax
(34
)
 
16

Less: Other comprehensive income attributable to noncontrolling interests

 

Other comprehensive (loss) income attributable to Tyco common shareholders
$
(34
)
 
$
16

_______________________________________________________________________________

(1) During the quarter ended December 28, 2012, $10 million of cumulative translation gains were transferred from currency translation and included in income from discontinued operation in the Consolidated Statements of Operations as a result of the sale of foreign entities.
(2) Income tax expense on the net investment hedge was $7 million for the quarter ended December 28, 2012.
(3) Reclassified to Net Periodic Benefit Cost. See Note 12 Retirement Plans for additional information.
(4) Reclassified realized gain (loss) on marketable securities and derivative instruments to Other expense, net.


23

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


A summary of the changes in each component of accumulated other comprehensive loss, net of tax, for the quarter ended December 27, 2013 are as follows ($ in millions):
 
Currency
Translation
Adjustments
 
Retirement
Plans
 
Accumulated Other
Comprehensive Loss
Balance as of September 27, 2013
$
(521
)
 
$
(466
)
 
$
(987
)
Other comprehensive loss before reclassifications, net of tax
(37
)
 

 
(37
)
Amounts reclassified from accumulated other comprehensive income, net of tax

 
3

 
3

Other comprehensive (loss) income, net of tax
(37
)
 
3

 
(34
)
Balance as of December 27, 2013
$
(558
)
 
$
(463
)
 
$
(1,021
)


14.    Share Plans
During the quarter ended December 27, 2013, the Company issued its annual share-based compensation grants. The total number of awards issued was approximately 3.0 million, of which 1.9 million were stock options, 0.5 million were restricted unit awards and 0.6 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 $10.12, $37.15 and $39.01, respectively. The weighted-average assumptions used in the Black-Scholes option pricing model included an expected stock price volatility of 33%, a risk free interest rate of 1.63%, an expected annual dividend per share of $0.64 and an expected option life of 5.5 years.
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.
The fair value of restricted stock units is determined based on the closing market price of the Company’s shares on the grant date. Performance share units, which are restricted share awards that vest dependent upon attainment of various levels of performance that equal or exceed targeted levels generally vest in their entirety three years from the grant date. The fair value of performance share units is determined based on the Monte Carlo valuation model. The compensation expense recognized for all restricted share awards is net of estimated forfeitures.

24

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


15.    Consolidated Segment Data
Segment information is consistent with how management reviews the businesses, makes investing and resource allocation decisions and assesses operating performance. Selected information by segment is presented in the following tables ($ in millions):
 
For the Quarters Ended
 
December 27, 2013
 
December 28, 2012
Net revenue(1):
 
 
 
NA Installation & Services
$
957

 
$
976

ROW Installation & Services
1,125

 
1,090

Global Products
565

 
534

 
$
2,647

 
$
2,600

_______________________________________________________________________________

(1) 
Net revenue by operating segment excludes intercompany transactions.
 
For the Quarters Ended
 
December 27, 2013
 
December 28, 2012
Operating income (loss):
 
 
 
NA Installation & Services
$
117

 
$
108

ROW Installation & Services
125

 
114

Global Products
86

 
74

Corporate and Other (1)
46

 
(61
)
 
$
374

 
$
235

_______________________________________________________________________________

(1)
Operating income for the quarter ended December 27, 2013 includes $92 million of income related to the settlement of a legacy legal matter with former management and $16 million of income related to the CIT settlement. See Note 11.

25

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



16.    Inventory
Inventories consisted of the following ($ in millions):
 
As of
 
December 27,
2013
 
September 27,
2013
Purchased materials and manufactured parts
$
167

 
$
157

Work in process
91

 
93

Finished goods
427

 
405

Inventories
$
685

 
$
655

Inventories are recorded at the lower of cost (primarily first-in, first-out) or market value.
17.    Property, Plant and Equipment
Property, plant and equipment consisted of the following ($ in millions):
 
As of
 
December 27,
2013
 
September 27,
2013
Land
$
44

 
$
44

Buildings
397

 
388

Subscriber systems
2,974

 
2,971

Machinery and equipment
1,252

 
1,232

Construction in progress
79

 
67

Accumulated depreciation
(3,068
)
 
(3,025
)
Property, Plant and Equipment, net
$
1,678

 
$
1,677

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 December 27, 2013 and September 27, 2013, 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 December 27, 2013 and September 27, 2013, 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

26

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


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.
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 27, 2013
$
31

Warranties issued
3

Changes in estimates
(2
)
Settlements
(3
)
Balance as of December 27, 2013
$
29

19.    Tyco International Finance S.A.
TIFSA, a 100% 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.
During fiscal 2013, the Company transferred certain investments in subsidiaries from Tyco to TIFSA. There was no impact on the Company’s financial position, results of operations and cash flows as the transactions were entirely among wholly-owned subsidiaries of Tyco. The transactions, which increased TIFSA’s investment in subsidiaries, were among entities under common control and their effects have been reflected as of the beginning of the earliest period presented, which resulted in a net increase to TIFSA’s Equity in net income of subsidiaries of $5 million for the quarter ended December 28, 2012.

27

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



CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
For the Quarter Ended December 27, 2013
($ in millions)
 
Tyco
International
Ltd.
 
Tyco
International
Finance S.A.
 
Other
Subsidiaries
 
Consolidating
Adjustments
 
Total
Net revenue
$

 
$

 
$
2,647

 
$

 
$
2,647

Cost of product sales

 

 
1,023

 

 
1,023

Cost of services

 

 
648

 

 
648

Selling, general and administrative expenses
(13
)
 
1

 
611

 

 
599

Restructuring and asset impairment charges, net

 

 
3

 

 
3

Operating income (loss)
13

 
(1
)
 
362

 

 
374

Interest income

 

 
3

 

 
3

Interest expense

 
(24
)
 

 

 
(24
)
Other expense, net
(1
)
 

 

 

 
(1
)
Equity in net income of subsidiaries
268

 
208

 

 
(476
)
 

Intercompany interest and fees
(10
)
 
9

 
1

 

 

Income from continuing operations before income taxes
270

 
192

 
366

 
(476
)
 
352

Income tax expense

 

 
(76
)
 

 
(76
)
Equity loss in earnings of unconsolidated subsidiaries

 

 
(4
)
 

 
(4
)
Income from continuing operations
270

 
192

 
286

 
(476
)
 
272

Income from discontinued operations, net of income taxes

 

 

 

 

Net income
270

 
192

 
286

 
(476
)
 
272

Less: noncontrolling interest in subsidiaries net income

 

 
2

 

 
2

Net income attributable to Tyco common shareholders
$
270

 
$
192

 
$
284

 
$
(476
)
 
$
270



28

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


CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME
For the Quarter Ended December 27, 2013
(in millions)
 
Tyco
International
Ltd.