10-Q 1 tyc-2015327x10q.htm 10-Q TYC-2015.3.27-10Q
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________________________________________
FORM 10-Q
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 27, 2015
or
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
333-196049
(Commission File Number)
___________________________________________________________
TYCO INTERNATIONAL PLC
(Exact name of Registrant as specified in its charter)
Ireland
(Jurisdiction of Incorporation)
 
98-0390500
(I.R.S. Employer Identification Number)
Unit 1202 Building 1000 City Gate
Mahon, Cork Ireland
(Address of registrant's principal executive office)
353-21-423-5000
(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 ordinary shares outstanding as of April 17, 2015 was 421,032,334.
 



TYCO INTERNATIONAL PLC
INDEX TO FORM 10-Q

 
 
 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

2


PART I. FINANCIAL INFORMATION
Item 1.    Financial Statements
    TYCO INTERNATIONAL PLC
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(in millions, except per share data)
 
For the Quarters Ended
 
For the Six Months Ended
 
March 27,
2015
 
March 28,
2014
 
March 27,
2015
 
March 28,
2014
Revenue from product sales
$
1,458

 
$
1,464

 
$
2,946

 
$
2,930

Service revenue
972

 
1,016

 
1,962

 
2,039

Net revenue
2,430

 
2,480

 
4,908

 
4,969

Cost of product sales
999

 
1,003

 
2,021

 
2,001

Cost of services
550

 
575

 
1,097

 
1,150

Selling, general and administrative expenses
648

 
635

 
1,300

 
1,205

Separation costs (see Note 2)

 
1

 

 
1

Restructuring and asset impairment charges, net (see Note 4)
12

 
7

 
70

 
10

Operating income
221

 
259

 
420

 
602

Interest income
4

 
3

 
7

 
6

Interest expense
(25
)
 
(25
)
 
(49
)
 
(49
)
Other (expense) income, net
(1
)
 
(1
)
 
3

 
(2
)
Income from continuing operations before income taxes
199

 
236

 
381

 
557

Income tax expense
(18
)
 
(39
)
 
(37
)
 
(109
)
Equity loss in earnings of unconsolidated subsidiaries

 
(5
)
 

 
(9
)
Income from continuing operations
181

 
192

 
344

 
439

(Loss) income from discontinued operations, net of income taxes
(16
)
 
15

 
(18
)
 
40

Net income
165

 
207

 
326

 
479

Less: noncontrolling interest in subsidiaries net (loss) income
(2
)
 

 
(3
)
 
2

Net income attributable to Tyco ordinary shareholders
$
167

 
$
207

 
$
329

 
$
477

Amounts attributable to Tyco ordinary shareholders:
 

 
 

 
 

 
 

Income from continuing operations
$
183

 
$
192

 
$
347

 
$
437

(Loss) income from discontinued operations
(16
)
 
15

 
(18
)
 
40

Net income attributable to Tyco ordinary shareholders
$
167

 
$
207

 
$
329

 
$
477

Basic earnings per share attributable to Tyco ordinary shareholders:
 

 
 

 
 

 
 

Income from continuing operations
$
0.44

 
$
0.41

 
$
0.83

 
$
0.94

(Loss) income from discontinued operations
(0.04
)
 
0.04

 
(0.05
)
 
0.09

Net income attributable to Tyco ordinary shareholders
$
0.40

 
$
0.45

 
$
0.78

 
$
1.03

Diluted earnings per share attributable to Tyco ordinary shareholders:
 

 
 

 
 

 
 

Income from continuing operations
$
0.43

 
$
0.41

 
$
0.81

 
$
0.93

(Loss) income from discontinued operations
(0.04
)
 
0.03

 
(0.04
)
 
0.08

Net income attributable to Tyco ordinary shareholders
$
0.39

 
$
0.44

 
$
0.77

 
$
1.01

Weighted average number of shares outstanding:
 

 
 

 
 

 
 

Basic
420

 
461

 
420

 
462

Diluted
427

 
469

 
427

 
470

   See Notes to Unaudited Consolidated Financial Statements.

3


TYCO INTERNATIONAL PLC
CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME (UNAUDITED)
(in millions)
 
For the Quarters Ended
 
For the Six Months Ended
 
March 27,
2015
 
March 28,
2014
 
March 27,
2015
 
March 28,
2014
Net income
$
165

 
$
207

 
$
326

 
$
479

Other comprehensive loss, net of tax
 
 
 
 

 

Foreign currency translation
(176
)
 
(15
)
 
(374
)
 
(52
)
Defined benefit and post retirement plans
4

 
4

 
9

 
7

Total other comprehensive loss, net of tax
(172
)
 
(11
)
 
(365
)
 
(45
)
Comprehensive (loss) income
(7
)
 
196

 
(39
)
 
434

Less: comprehensive (loss) income attributable to noncontrolling interests
(2
)
 

 
(3
)
 
2

Comprehensive (loss) income attributable to Tyco ordinary shareholders
$
(5
)
 
$
196

 
$
(36
)
 
$
432

   See Notes to Unaudited Consolidated Financial Statements.

4


TYCO INTERNATIONAL PLC
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(in millions, except per share data)
 
March 27,
2015
 
September 26,
2014
Assets
 
 
 
Current Assets:
 
 
 
Cash and cash equivalents
$
432

 
$
892

Accounts receivable, less allowance for doubtful accounts of $74 and $67, respectively
1,643

 
1,734

Inventories
677

 
625

Prepaid expenses and other current assets
867

 
1,051

Deferred income taxes
304

 
304

Assets held for sale
155

 
180

Total Current Assets
4,078

 
4,786

Property, plant and equipment, net
1,216

 
1,262

Goodwill
4,265

 
4,122

Intangible assets, net
908

 
712

Other assets
1,228

 
927

Total Assets
$
11,695

 
$
11,809

Liabilities and Equity
 
 
 
Current Liabilities:
 
 
 
Loans payable and current maturities of long-term debt
$
278

 
$
20

Accounts payable
735

 
825

Accrued and other current liabilities
1,959

 
2,114

Deferred revenue
405

 
400

Liabilities held for sale
102

 
118

Total Current Liabilities
3,479

 
3,477

Long-term debt
1,732

 
1,443

Deferred revenue
315

 
335

Other liabilities
1,927

 
1,871

Total Liabilities
7,453

 
7,126

Commitments and Contingencies (see Note 11)


 

Redeemable noncontrolling interest in businesses held for sale
12

 
13

Tyco Shareholders' Equity:
 
 
 
Ordinary shares, $0.01 and CHF 0.50 par value, 1,000,000,000 and 825,222,070 shares authorized, and 420,872,396 and 486,363,050 shares issued as March 27, 2015 and September 26, 2014, respectively
4

 
208

Preference shares $0.01 par value, 100,000,000 shares authorized, none outstanding as of March 27, 2015



Ordinary shares held in treasury, nil and 59,460,486 shares as of March 27, 2015 and September 26, 2014, respectively

 
(2,515
)
Additional paid in capital
565

 
3,306

Accumulated earnings
5,202

 
4,873

Accumulated other comprehensive loss
(1,590
)
 
(1,225
)
Total Tyco Shareholders' Equity
4,181

 
4,647

Nonredeemable noncontrolling interest
49

 
23

Total Equity
4,230

 
4,670

Total Liabilities, Redeemable Noncontrolling Interest and Equity
$
11,695

 
$
11,809

   See Notes to Unaudited Consolidated Financial Statements.

5


TYCO INTERNATIONAL PLC
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(in millions)
 
For the Six Months Ended
 
March 27,
2015
 
March 28,
2014
Cash Flows From Operating Activities:
 
 
 
Net income attributable to Tyco ordinary shareholders
$
329

 
$
477

Noncontrolling interest in subsidiaries net (loss) income
(3
)
 
2

Income (loss) from discontinued operations, net of income taxes
18

 
(40
)
Income from continuing operations
344

 
439

Adjustments to reconcile net cash provided by operating activities:
 
 
 
Depreciation and amortization
171

 
180

Non-cash compensation expense
30

 
31

Deferred income taxes
(29
)
 
56

Provision for losses on accounts receivable and inventory
34

 
23

Legacy legal matters (see Note 11)

 
(92
)
Other non-cash items
23

 
17

Changes in assets and liabilities, net of the effects of acquisitions and divestitures:
 
 
 
Accounts receivable, net
22

 
36

Contracts in progress
(30
)
 
(5
)
Inventories
(64
)
 
(24
)
Prepaid expenses and other assets
(44
)
 
(40
)
Accounts payable
(87
)
 
(48
)
Accrued and other liabilities
(64
)
 
(220
)
Deferred revenue
4

 
11

Other
(48
)
 
2

Net cash provided by operating activities
262

 
366

Net cash provided by discontinued operating activities
3

 
77

Cash Flows From Investing Activities:
 
 
 
Capital expenditures
(123
)
 
(135
)
Proceeds from disposal of assets
3

 
6

Acquisition of businesses, net of cash acquired
(525
)
 
(54
)
Acquisition of dealer generated customer accounts and bulk account purchases
(8
)
 
(16
)
Divestiture of business, net of cash divested
(1
)
 

Sales and maturities of investments
279

 
141

Purchases of investments
(288
)
 
(40
)
(Increase) decrease in restricted cash
(39
)
 
6

Other
(1
)
 

Net cash used in investing activities
(703
)
 
(92
)
Net cash used in discontinued investing activities
(15
)
 
(57
)
Cash Flows From Financing Activities:
 
 
 
Proceeds from issuance of short-term debt

 
715

Repayment of short-term debt
(1
)
 
(715
)
Proceeds from issuance of long-term debt
567

 

Proceeds from exercise of share options
57

 
62

Dividends paid
(151
)
 
(148
)
Repurchase of ordinary shares
(417
)
 
(250
)
Transfer (to) from discontinued operations
(12
)
 
20

Payment of contingent consideration
(23
)
 

Other
(23
)
 
(10
)
Net cash used in financing activities
(3
)
 
(326
)
Net cash provided by (used in) discontinued financing activities
12

 
(20
)
Effect of currency translation on cash
(16
)
 
(16
)
Net decrease in cash and cash equivalents
(460
)
 
(68
)
Cash and cash equivalents at beginning of period
892

 
563

Cash and cash equivalents at end of period
$
432

 
$
495

See Notes to Unaudited Consolidated Financial Statements.

6


TYCO INTERNATIONAL PLC
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (UNAUDITED)
For the Six Months Ended March 27, 2015 and March 28, 2014
(in millions)
 
Number of
Ordinary
Shares
 
Ordinary
Shares at
Par Value
 
Treasury
Shares
 
Additional Paid in Capital
 
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 attributable to Tyco ordinary shareholders
 
 
 
 
 
 
 
 
477

 
 
 
477

 
2

 
479

Other comprehensive loss, net of tax
 
 
 
 
 
 
 
 
 
 
(45
)
 
(45
)
 
 
 
(45
)
Dividends declared
 
 
 
 
 
 
(332
)
 
 
 
 
 
(332
)
 
 
 
(332
)
Shares issued from treasury for vesting of share based equity awards
5

 
 
 
182

 
(120
)
 
 
 
 
 
62

 
 

 
62

Repurchase of ordinary shares
(7
)
 
 
 
(250
)
 
 
 
 
 
 
 
(250
)
 
 

 
(250
)
Compensation expense
 
 
 
 
 
 
32

 
 
 
 
 
32

 
 

 
32

Other
 
 
 
 
(11
)
 
 
 
 
 
 
 
(11
)
 


 
(11
)
Balance as of March 28, 2014
461

 
$
208

 
$
(991
)
 
$
3,334

 
$
3,512

 
$
(1,032
)
 
$
5,031

 
$
25

 
$
5,056


 
Number of
Ordinary
Shares
 
Ordinary
Shares at
Par Value
 
Treasury
Shares
 
Additional Paid in Capital
 
Accumulated
Earnings
 
Accumulated
Other
Comprehensive
Loss
 
Total Tyco
Shareholders'
Equity
 
Nonredeemable
Noncontrolling
Interest
 
Total
Equity
Balance as of September 26, 2014
427

 
$
208

 
$
(2,515
)
 
$
3,306

 
$
4,873

 
$
(1,225
)
 
$
4,647

 
$
23

 
$
4,670

Comprehensive income:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income attributable to Tyco ordinary shareholders
 
 
 
 
 
 
 
 
329

 
 
 
329

 
(3
)
 
326

Other comprehensive loss, net of tax
 
 
 
 
 
 
 
 
 
 
(365
)
 
(365
)
 
 
 
(365
)
Cancellation of treasury shares
 
 
(34
)
 
2,878

 
(2,844
)
 
 
 
 
 

 
 
 

Dividends declared
 
 
 
 
 
 
(84
)
 
 
 
 
 
(84
)
 
 

 
(84
)
Conversion of Tyco International Ltd. common shares to Tyco International plc ordinary shares
 
 
(170
)
 
 
 
170

 
 
 
 
 

 
 

 

Shares issued for vesting of share based equity awards
4

 
 
 
67

 
(10
)
 
 
 
 
 
57

 
 

 
57

Repurchase of ordinary shares
(10
)
 
 
 
(417
)
 
 
 
 
 
 
 
(417
)
 
 

 
(417
)
Compensation expense
 
 
 
 
 
 
30

 
 
 
 
 
30

 
 

 
30

Noncontrolling interest related to acquisitions
 
 
 
 
 
 


 
 
 
 
 

 
29

 
29

Other
 
 
 
 
(13
)
 
(3
)
 
 
 
 
 
(16
)
 


 
(16
)
Balance as of March 27, 2015
421

 
$
4

 
$

 
$
565

 
$
5,202

 
$
(1,590
)
 
$
4,181

 
$
49

 
$
4,230

   See Notes to Unaudited Consolidated Financial Statements.

7


TYCO INTERNATIONAL PLC
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 plc, a corporation organized under the laws of Ireland, 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 and 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 26, 2014 (the "2014 Form 10-K").
References to 2015 and 2014 are to Tyco's fiscal quarters ending March 27, 2015 and March 28, 2014, respectively, unless otherwise indicated. The Company has a 52 or 53-week fiscal year that ends on the last Friday in September. Fiscal years 2015 and 2014 are both 52-week years.
Change of Jurisdiction - On November 17, 2014, Tyco International Ltd., an entity organized under the laws of Switzerland ("Tyco Switzerland"), completed its change of jurisdiction of incorporation from Switzerland to Ireland by merging with its subsidiary, Tyco International plc ("Tyco Ireland"), a public limited company incorporated under the laws of Ireland (the "Merger"). As a result of the Merger, Tyco Ireland is the successor issuer to Tyco Switzerland, has succeeded to the attributes of Tyco Switzerland as the registrant under SEC regulations, and has assumed all pre-Merger obligations of Tyco Switzerland.
Reclassifications - Certain prior period amounts have been reclassified to conform with current period presentation. The Company has reclassified several businesses in the Rest of World ("ROW") Installation & Services segment to (Loss) income from discontinued operations in the Consolidated Statements of Operations and the assets and liabilities as held for sale within the Consolidated Balance Sheets for all periods presented as they satisfied the criteria to be presented as discontinued operations. In addition, the Company has reclassified the assets and liabilities of several businesses in the ROW Installation & Services segment as held for sale during the quarter ended March 27, 2015. One of these businesses satisfied the criteria to be presented as discontinued operations and has been reflected as such in the Consolidated Statements of Operations for all periods presented. See Note 3.
Recently Adopted Accounting Pronouncements - In March 2013, the Financial Accounting Standards Board ("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 became effective for Tyco in the first quarter of fiscal 2015. The adoption of this guidance, which was applied on a prospective basis, did not have a material impact on the Company's financial position, results of operations or cash flows.
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, 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 became effective for Tyco during the first fiscal quarter of fiscal 2015. The adoption of this guidance, which was applied on a prospective basis, did not have a material impact on the Company's financial position, results of operations or cash flows.

8

TYCO INTERNATIONAL PLC
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


Recently Issued Accounting Pronouncements - In April 2014, the FASB issued authoritative guidance to change the criteria for reporting discontinued operations. Under the new guidance, only disposals representing a strategic shift in a company's operations and financial results should be reported as discontinued operations, with expanded disclosures. In addition, disclosure of the pre-tax income attributable to a disposal of a significant part of an organization that does not qualify as a discontinued operation is required. This guidance is effective for Tyco in the first quarter of fiscal 2016, with early adoption permitted only for disposals that have not been reported in financial statements previously issued or available for issuance. The Company is currently assessing the impact, if any, the guidance will have upon adoption.
In May 2014, the FASB issued authoritative guidance for revenue from contracts with customers, which provides a single comprehensive revenue recognition model to apply in determining how and when to recognize revenue. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. When applying the new revenue model to contracts with customers the guidance requires five steps to be applied, which include: 1) identify the contract(s) with a customer, 2) identify the performance obligations in the contract, 3) determine the transaction price, 4) allocate the transaction price to the performance obligations in the contract and 5) recognize revenue when (or as) the entity satisfies a performance obligation. The guidance also requires both quantitative and qualitative disclosures, which are more comprehensive than existing revenue standards. The disclosures are intended to enable financial statement users to understand the nature, timing and uncertainty of revenue and the related cash flow. This guidance will be effective for Tyco in the first quarter of fiscal 2018, with early adoption not permitted. The Company is currently assessing the impact 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 ("2012 Separation").
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") within continuing operations of nil and $16 million during the quarters ended March 27, 2015 and March 28, 2014, respectively, and $2 million and $31 million for the six months ended March 27, 2015 and March 28, 2014, respectively. In addition, the Company incurred pre-tax charges within discontinued operations of nil and $1 million for both the quarters and six months ended March 27, 2015 and March 28, 2014, 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 Company received associated tax benefits of nil and $5 million during the quarters ended March 27, 2015 and March 28, 2014, respectively, and $1 million and $11 million for the six months ended March 27, 2015 and March 28, 2014, respectively. The Company does not expect to incur material separation charges relating to activities taken to complete the 2012 Separation in future periods.
3.    Divestitures
The Company continually assesses the strategic fit of its various businesses and from time to time divests businesses which do not align with its long-term strategy.
During the quarter ended March 27, 2015, the Company concluded that several businesses in the ROW Installation & Services segment which it intends to sell met the criteria to be classified as held for sale. The Company expects to complete the sale of these businesses during the remainder of fiscal 2015. In addition, during fiscal 2014, the Company concluded that several other businesses in the ROW Installation & Services segment which it intends to sell met the criteria to be classified as held for sale. The Company expects to complete the sale of these businesses by the end of the third quarter of fiscal 2015.
The businesses described above are accounted for as held for sale on the Consolidated Balance Sheets as of March 27, 2015 and September 26, 2014. To the extent the criteria required to be presented as a discontinued operation have been satisfied, the businesses results of operations have been presented as such on the Consolidated Statements of Operations during the quarters and six months ended March 27, 2015 and March 28, 2014.

9

TYCO INTERNATIONAL PLC
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


Discontinued Operations
The components of (loss) income from discontinued operations, net of income taxes are as follows ($ in millions):
 
For the Quarters Ended
 
For the Six Months Ended
 
March 27, 2015
 
March 28, 2014
 
March 27, 2015
 
March 28, 2014
Net revenue
$
5

 
$
152

 
$
10

 
$
310

Pre-tax (loss) income from discontinued operations
(6
)
 
20

 
(9
)
 
52

Pre-tax separation loss included within discontinued operations (See Note 2)

 
(1
)
 

 
(1
)
Pre-tax (loss) gain on sale of discontinued operations

 
(4
)
 
1

 
(4
)
Income tax expense
(10
)
 

 
(10
)
 
(7
)
(Loss) income from discontinued operations, net of income taxes
$
(16
)
 
$
15

 
$
(18
)
 
$
40

Balance sheet information for the discontinued operations as of March 27, 2015 and September 26, 2014 was as follows ($ in millions):
 
As of
 
March 27, 2015
 
September 26, 2014
Accounts receivable, net
$
20

 
$
26

Inventories
6

 
7

Prepaid expenses and other current assets
95

 
107

Deferred income taxes
3

 
3

Property, plant and equipment, net
6

 
6

Goodwill
3

 
3

Intangible assets, net
21

 
25

Other assets
1

 
3

  Total assets
$
155

 
$
180

Accounts payable
38

 
48

Accrued and other current liabilities
55

 
62

Deferred revenue
2

 
2

Other liabilities
7

 
6

  Total liabilities
$
102

 
$
118

Because the Company utilizes a centralized approach to cash management and the financing of its operations, all cash that is generated by discontinued operations is routinely transferred to the Company's financing subsidiaries in continuing operations. As a result, Transfers from discontinued operations on the Company's Consolidated Statement of Cash Flows reflects the net cash movements from discontinued operations to continuing operations that have occurred during the period.


10

TYCO INTERNATIONAL PLC
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


4.    Restructuring and Asset Impairment Charges, Net
During fiscal 2015, the Company identified and pursued additional 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 $75 million to $100 million in fiscal 2015, which does not include repositioning charges as described below.
The Company recorded restructuring and asset impairment charges by action as follows ($ in millions):
 
For the Quarters Ended
 
For the Six Months Ended
 
March 27, 2015
 
March 28, 2014
 
March 27, 2015
 
March 28, 2014
2015 actions
$
9

 
$

 
$
58

 
$

2014 actions
4

 
8

 
10

 
9

2013 and prior actions
(1
)
 
(1
)
 
2

 
1

Total
$
12

 
$
7

 
$
70

 
$
10

2015 Actions

Restructuring and asset impairment charges, net, during the quarter and six months ended March 27, 2015 related to the 2015 actions are as follows ($ in millions):
 
For the Quarter Ended March 27, 2015
 
Employee
Severance and
Benefits
NA Installation & Services
$
4

ROW Installation & Services
4

Global Products
1

Total
$
9

 
For the Six Months Ended March 27, 2015
 
Employee
Severance and
Benefits
 
Facility Exit and Other Charges
 
Total
NA Installation & Services
$
26

 
$

 
$
26

ROW Installation & Services
14

 
5

 
19

Global Products
3

 

 
3

Corporate and Other
10

 

 
10

Total
$
53

 
$
5

 
$
58

The rollforward of the reserves from September 26, 2014 to March 27, 2015 is as follows ($ in millions):
Balance as of September 26, 2014
$

Charges
60

Reversals
(2
)
Utilization
(25
)
Currency translation
(1
)
Balance as of March 27, 2015
$
32



11

TYCO INTERNATIONAL PLC
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


2014 Actions

Restructuring and asset impairment charges, net, during the quarters and six months ended March 27, 2015 and March 28, 2014 related to the 2014 actions are as follows ($ in millions):
 
For the Quarter Ended
March 27, 2015
 
For the Quarter Ended
March 28, 2014
 
Employee
Severance and
Benefits
 
Employee
Severance and
Benefits
NA Installation & Services
$

 
$
3

ROW Installation & Services

 
4

Global Products
4

 
1

Total
$
4

 
$
8

 
For the Six Months Ended
March 27, 2015
 
For the Six Months Ended
March 28, 2014
 
Employee
Severance and
Benefits
 
Employee
Severance and
Benefits
NA Installation & Services
$
1

 
$
3

ROW Installation & Services

 
5

Global Products
9

 
1

Total
$
10

 
$
9


Restructuring and asset impairment charges, net, incurred cumulative to date from initiation of the 2014 actions are as follows ($ in millions):
 
Employee
Severance and
Benefits
 
Facility Exit
and Other
Charges
 
Charges Reflected in SG&A
 
Total
NA Installation & Services
$
17

 
$

 
$

 
$
17

ROW Installation & Services
18

 
5

 

 
23

Global Products
12

 

 
2

 
14

Total
$
47

 
$
5

 
$
2

 
$
54

The rollforward of the reserves from September 26, 2014 to March 27, 2015 is as follows ($ in millions):
Balance as of September 26, 2014
$
29

Charges
10

Utilization
(14
)
Currency translation
(2
)
Balance as of March 27, 2015
$
23

2013 and prior actions
The Company continues to maintain restructuring reserves related to actions initiated prior to fiscal 2014. The total amount of these reserves was $50 million and $70 million as of March 27, 2015 and September 26, 2014, respectively. The Company incurred $2 million and $4 million of restructuring charges, $3 million and $5 million of reversals, and utilized $6 million and $17 million for the quarters ended March 27, 2015 and March 28, 2014, respectively, related to 2013 and prior actions. The Company incurred $5 million and $14 million of restructuring charges, $3 million and $13 million of reversals, and utilized $15 million and $41 million for the six months ended March 27, 2015 and March 28, 2014, respectively, related to 2013 and prior actions. The remaining change in reserve during the quarters and six months ended March 27, 2015 and March 28, 2014 relates to currency translation. 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.

12

TYCO INTERNATIONAL PLC
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


Total Restructuring Reserves
As of March 27, 2015 and September 26, 2014, restructuring reserves related to all actions were included in the Company's Consolidated Balance Sheets as follows ($ in millions):
 
As of
 
March 27,
2015
 
September 26, 2014
Accrued and other current liabilities
$
90

 
$
83

Other liabilities
15

 
16

Total
$
105

 
$
99

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 quarters ended March 27, 2015 and March 28, 2014, the Company recorded repositioning charges of $17 million and $9 million, respectively, and $34 million and $15 million for the six months ended March 27, 2015 and March 28, 2014, respectively, primarily related to professional fees which have been reflected in Selling, general and administrative expenses in the Consolidated Statements of Operations.
5.    Acquisitions
During the quarter ended March 27, 2015, total consideration paid, net of $6 million of cash acquired and $5 million of holdback liability, for six acquisitions included in continuing operations was $373 million. Current quarter activity is primarily related to the acquisition of Industrial Safety Technologies International ("IST"), a global leader in gas and flame detection with operations in Europe, the Middle East, China, and the U.S., for total consideration paid, net of $5 million of cash acquired, of $327 million. The purchase price for IST was allocated to $70 million of assets, $134 million of goodwill, $143 million of intangible assets and the assumption of $15 million of liabilities. IST is being integrated into the Global Products segment. The remaining $46 million in purchase price relates to five acquisitions that will be integrated into the ROW Installation & Services and Global Products segments and working capital adjustments related to prior year acquisitions.
During the six months ended March 27, 2015, total consideration paid, net of $26 million of cash acquired and $8 million of holdback liability, for 11 acquisitions included in continuing operations was $525 million. This includes working capital adjustments described above. In addition to the acquisition of IST within the Global Products segment, the Company made 10 acquisitions during the six months ended March 27, 2015.
The determination of fair value for certain assets and liabilities relating to the acquisitions made during the quarter ended December 27, 2014 has been finalized, which did not result in a material adjustment. The final determination of fair value for certain assets and liabilities relating to several of the acquisitions made during the quarter ended March 27, 2015 remains subject to change based on final valuations of the assets acquired and liabilities assumed. The Company does not expect the finalization of these matters, which is expected to be completed within fiscal 2015, to have a material effect on the purchase price allocation.
During the quarter ended March 28, 2014, the Company did not complete any acquisitions. During the six months ended March 28, 2014, total consideration paid, net of $1 million cash acquired, and $1 million of contingent consideration, for acquisitions included in continuing operations was $54 million, This 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 has been integrated into the NA Installation & Services and ROW Installation & Services segments.


13

TYCO INTERNATIONAL PLC
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


6.    Income Taxes
Tyco did not have a significant change to its unrecognized tax benefits during the quarter ended March 27, 2015.
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 included in continuing operations are as follows:
Jurisdiction
Years Open
To Audit
Australia
2004-2014
Canada
2006-2014
Germany
2005-2014
Ireland
2010-2014
Switzerland
2005-2014
United Kingdom
2012-2014
United States
1997-2014
Based on the current status of its income tax audits, Tyco believes that it is reasonably possible that between nil and $20 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 March 27, 2015, Tyco recorded deferred tax assets of approximately $349 million, which is comprised of $2.4 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 (i) Tyco, Pentair and ADT after the 2012 Separation and (ii) Tyco, Medtronic (formerly Covidien plc) and TE Connectivity after the 2007 Separation, with respect to taxes. Specifically, this includes taxes in the ordinary course of business and taxes, if any, incurred as a result of any failure of the respective distributions to qualify tax-free for U.S. federal income tax purposes within the meaning of Section 355 of the Internal Revenue Code ("the Code") or certain internal transactions undertaken in anticipation of the spin-offs to qualify for tax-favored treatment under the Code.
Under the 2012 Tax Sharing Agreement, Tyco, Pentair and ADT share (i) certain pre-Distribution income tax liabilities that arise from adjustments made by tax authorities to ADT's, Tyco Flow Control's and Tyco's income tax returns, and (ii) payments required to be made by Tyco with respect to the 2007 Tax Sharing Agreement, excluding approximately $175 million of pre-2012 Separation related tax liabilities (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. In connection with the execution of the 2012 Tax Sharing Arrangement, Tyco established liabilities representing the fair market value of its obligations which is recorded in Other liabilities in the Company's Consolidated Balance Sheet with an offset to Tyco shareholders' equity.
Under the 2007 Tax Sharing Agreement, Tyco shares responsibility for certain of Tyco's, Medtronic'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, Medtronic 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, Medtronic'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 Medtronic 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 Medtronic's and TE Connectivity's estimated obligations, primarily to the IRS, for their pre-2007 Separation taxes covered by the 2007 Tax Sharing Agreement.

14

TYCO INTERNATIONAL PLC
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


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 Medtronic 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 they 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 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 has been 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. A trial date has been set for February 2016. Tyco believes that it has meritorious defenses for its tax filings, that the IRS positions with regard to these matters are inconsistent with the applicable tax laws and existing Treasury regulations, and that the previously reported taxes for the years in question are appropriate.
No payments with respect to these matters would be required until the dispute is definitively resolved, which, based on the experience of other companies, could take several years. Tyco believes that its income tax reserves and the liabilities recorded in the Consolidated Balance Sheet for the Tax Sharing Agreements continue to be appropriate. However, the ultimate resolution of these matters, and the impact of that resolution, are uncertain and could have a material impact on Tyco's financial condition, results of operations and cash flows. In particular, if the IRS is successful in asserting its claim, it would have an adverse impact on interest deductions related to the same intercompany debt in subsequent time periods, totaling approximately $6.6 billion, which is also expected to be disallowed by the IRS.
As noted above, Tyco has assessed its obligations under the 2007 Tax Sharing Agreement to determine that its recorded liability is sufficient to cover the indemnifications made by it under such agreement. In the absence of observable transactions for identical or similar guarantees, Tyco determined the fair value of these guarantees and indemnifications utilizing expected present value measurement techniques. Significant assumptions utilized to determine fair value included determining a range of potential outcomes, assigning a probability weighting to each potential outcome and estimating the anticipated timing of resolution. The probability weighted outcomes were discounted using Tyco's incremental borrowing rate. 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

15

TYCO INTERNATIONAL PLC
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


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 Medtronic and TE Connectivity are responsible for their tax liabilities that are not subject to the 2012 or 2007 Tax Sharing Agreements' sharing formula.
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 March 27, 2015 and September 26, 2014, are as follows ($ in millions):
 
2012 Tax Sharing Agreement
 
2007 Tax Sharing Agreement
 
As of
 
As of
 
March 27, 2015
 
September 26, 2014
 
March 27, 2015
 
September 26, 2014
Tax sharing agreement related receivables:
 
 
 
 
 
 
 
Prepaid expenses and other current assets
$

 
$

 
$
3

 
$
3

Other assets

 

 
24

 
23

 

 

 
27

 
26

Tax sharing agreement related liabilities:
 
 
 
 
 
 
 
Accrued and other current liabilities

 

 
(21
)
 
(21
)
Other liabilities
(46
)
 
(46
)
 
(194
)
 
(194
)
 
(46
)
 
(46
)
 
(215
)
 
(215
)
Net liability
$
(46
)
 
$
(46
)
 
$
(188
)
 
$
(189
)
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 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. It is not practicable to estimate the additional income taxes related to permanently reinvested earnings or the basis differences related to investments in subsidiaries.

16

TYCO INTERNATIONAL PLC
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


7.    Earnings Per Share
The reconciliations between basic and diluted earnings per share attributable to Tyco ordinary shareholders are as follows (in millions, except per share data):
 
For the Quarter Ended
March 27, 2015
 
For the Quarter Ended
March 28, 2014
 
Income
 
Shares
 
Per Share
Amount
 
Income
 
Shares
 
Per Share
Amount
Basic earnings per share attributable to Tyco ordinary shareholders:
 
 
 
 
 
 
 
 
 
 
 
Income from continuing operations
$
183

 
420

 
$
0.44

 
$
192

 
461

 
$
0.41

Share options and restricted share awards

 
7

 
 
 

 
8

 
 
Diluted earnings per share attributable to Tyco ordinary shareholders:
 
 
 
 
 
 
 
 
 
 
 
Income from continuing operations attributable to Tyco ordinary shareholders, giving effect to dilutive adjustments
$
183

 
427

 
$
0.43

 
$
192

 
469

 
$
0.41

 
For the Six Months Ended
March 27, 2015
 
For the Six Months Ended
March 28, 2014
 
Income
 
Shares
 
Per Share
Amount
 
Income
 
Shares
 
Per Share
Amount
Basic earnings per share attributable to Tyco ordinary shareholders:
 
 
 
 
 
 
 
 
 
 
 
Income from continuing operations
$
347

 
420

 
$
0.83

 
$
437

 
462

 
$
0.94

Share options and restricted share awards

 
7

 
 
 

 
8

 
 
Diluted earnings per share attributable to Tyco ordinary shareholders:
 
 
 
 
 
 
 
 
 
 
 
Income from continuing operations attributable to Tyco ordinary shareholders, giving effect to dilutive adjustments
$
347

 
427

 
$
0.81

 
$
437

 
470

 
$
0.93

The computation of diluted earnings per share for the quarter and six months ended March 27, 2015 excludes the effect of the potential exercise of share options to purchase approximately 3 million shares for both periods and excludes restricted stock units of approximately 1 million shares for both periods because the effect would be anti-dilutive.
The computation of diluted earnings per share for the quarter and six months ended March 28, 2014 excludes the effect of the potential exercise of share options to purchase approximately 2 million shares for both periods and excludes restricted stock units of approximately 2 million shares for both periods because the effect would be anti-dilutive.

17

TYCO INTERNATIONAL PLC
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
 
 
 
 
 
 
 
 
Gross goodwill
$
2,104

 
$
1,991

 
$
1,824

 
$
5,919

Accumulated impairment
(126
)
 
(1,068
)
 
(567
)
 
(1,761
)
Carrying amount of goodwill as of September 27, 2013
1,978

 
923

 
1,257

 
4,158

2014 activity:


 


 


 


Acquisitions/ purchase accounting adjustments
10

 
15

 
(4
)
 
21

Currency translation
(12
)
 
(34
)
 
(11
)
 
(57
)


 

 

 

Gross goodwill
$
2,102

 
$
1,972

 
$
1,809

 
$
5,883

Accumulated impairment
(126
)
 
(1,068
)
 
(567
)
 
(1,761
)
Carrying amount of goodwill as of September 26, 2014
1,976

 
904

 
1,242

 
4,122

2015 activity:


 


 


 


Acquisitions / purchase accounting adjustments
15

 
34

 
275

 
324

Currency translation
(20
)
 
(128
)
 
(33
)
 
(181
)


 

 

 

Gross goodwill
$
2,097

 
$
1,878

 
$
2,051

 
$
6,026

Accumulated impairment
(126
)
 
(1,068
)
 
(567
)
 
(1,761
)
Carrying amount of goodwill as of March 27, 2015
$
1,971

 
$
810

 
$
1,484

 
$
4,265

The following table sets forth the gross carrying amount and accumulated amortization of the Company's intangible assets as of March 27, 2015 and September 26, 2014 ($ in millions):
 
As of
 
March 27, 2015
 
September 26, 2014
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Gross
Carrying
Amount
 
Accumulated
Amortization
Amortizable:
 
 
 
 
 
 
 
Contracts and related customer relationships
$
1,377

 
$
1,040

 
$
1,400

 
$
1,113

Intellectual property
768

 
497

 
608

 
487

Other
10

 
7

 
29

 
15

Total
$
2,155

 
$
1,544

 
$
2,037

 
$
1,615

Non-Amortizable:
 
 
 
 
 
 
 
Intellectual property
$
212

 
 

 
$
214

 
 
Franchise rights
76

 
 

 
76

 
 
Other
9

 
 
 

 
 
Total
$
297

 
 

 
$
290

 
 
Intangible asset amortization expense for the quarters ended March 27, 2015 and March 28, 2014 was $21 million and $23 million, respectively. Intangible asset amortization expense for the six months ended March 27, 2015 and March 28, 2014 was $41 million and $46 million, respectively.
The estimated aggregate amortization expense on intangible assets is expected to be approximately $40 million for the remainder of 2015, $88 million for 2016, $79 million for 2017, $74 million for 2018, and $330 million for 2019 and thereafter.

18

TYCO INTERNATIONAL PLC
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


9.    Debt
Debt as of March 27, 2015 and September 26, 2014 is as follows ($ in millions):
 
As of
 
March 27, 2015
 
September 26, 2014
3.375% public notes due 2015 (1)
$
258

 
$
258

3.75% public notes due 2018
67

 
67

8.5% public notes due 2019
364

 
364

7.0% public notes due 2019
245

 
245

6.875% public notes due 2021
465

 
465

4.625% public notes due 2023
42

 
42

1.375% public notes due 2025
548

 

Other (2)
21

 
22

Total debt
2,010

 
1,463

Less current portion
278

 
20

Long-term debt
$
1,732

 
$
1,443

_______________________________________________________________________________
(1) $258 million of 3.375% public notes due October 2015 is included in the current portion of debt as of March 27, 2015.
(2) $20 million of the amount shown as other is included in the current portion of the Company's total debt as of both March 27, 2015 and September 26, 2014.
Fair Value
The carrying amount of Tyco's debt subject to the fair value disclosure requirements as of March 27, 2015 and September 26, 2014 was $1,989 million and $1,441 million, respectively. The Company has determined the fair value of such debt to be $2,198 million and $1,670 million as of March 27, 2015 and September 26, 2014, 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 March 27, 2015 and September 26, 2014, $1,989 million and $1,441 million, respectively, of the Company's debt, which is actively traded and subject to the fair value disclosure requirements, is classified as Level 1 in the fair value hierarchy.
Commercial Paper
From time to time, the Company's wholly-owned subsidiary, 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 March 27, 2015. As of March 27, 2015 and September 26, 2014, TIFSA had no commercial paper outstanding.
Credit Facilities
The Company's committed revolving credit facility totaled $1 billion as of March 27, 2015. This revolving credit facility may be used for working capital, capital expenditures and general corporate purposes. As of March 27, 2015 and September 26, 2014, 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.
Debt Issuance/Repayment
On February 25, 2015, TIFSA issued €500 million aggregate principal amount of 1.375% Notes due February 25, 2025 (the "Notes"), which are fully and unconditionally guaranteed by each of the Company and Tyco Fire & Security Finance S.C.A. TIFSA received total net proceeds of approximately $563 million after deducting debt issuance costs of approximately $5 million and a debt discount of approximately $1 million. The net proceeds, were made available for general corporate

19

TYCO INTERNATIONAL PLC
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


purposes. The Notes are TIFSA’s senior unsecured obligations and rank equally in right of payment with all of its existing and future senior debt, and senior to any subordinated indebtedness that TIFSA may incur. The Notes were designated as a net investment hedge. See Note 10.
10.    Financial Instruments
The Company's financial instruments consist primarily of cash and cash equivalents, time deposits, accounts receivable, investments, accounts payable, debt and derivative financial instruments. The fair value of cash and cash equivalents, time deposits, accounts receivable, and accounts payable approximated book value as of March 27, 2015 and September 26, 2014. 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 six months ended March 27, 2015, 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. During the quarter, the Company designated its €500 million of 1.375% public notes due February 2025 as a net investment hedge of the Company’s investments in certain of its international subsidiaries that use the Euro as their functional currency and intercompany permanent loans in order to reduce the volatility caused by changes in foreign currency exchange rates of the Euro with respect to the U.S. Dollar. During the quarter ended March 27, 2015, the change in the carrying value due to remeasurement of the Euro denominated 2025 Notes resulted in a $20 million gain reported in Accumulated other comprehensive loss on the Consolidated Balance Sheets. This hedge did not result in any hedge ineffectiveness for the quarter and six months ended March 27, 2015. During the quarter ended March 28, 2014, the Company did not have hedging instruments that were designated and qualified as hedging instruments for accounting purposes.
As of March 27, 2015 and September 26, 2014, the total gross notional amount of the Company's foreign exchange contracts was $298 million and $258 million, respectively. 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 March 27, 2015 and September 26, 2014 or Consolidated Statements of Operations and Consolidated Statements of Cash Flows for the quarters and six months ended March 27, 2015 and March 28, 2014.
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.

20

TYCO INTERNATIONAL PLC
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


Investments
Investments may primarily include marketable securities such as U.S. government obligations, U.S. government agency and corporate debt securities, equity securities, exchange traded funds or time deposits with banks.
When available, the Company uses quoted market prices to determine the fair value of investment securities. Such investments are included in Level 1. When quoted market prices are not readily available, pricing determinations are made based on the results of market approach valuation models using observable market data such as recently reported trades, bid and offer information and benchmark securities. These investments are included in Level 2 and consist primarily of U.S. government agency securities and corporate debt securities.
Assets Measured at Fair Value on a Recurring Basis
The following table presents the Company's hierarchy for its assets measured at fair value on a recurring basis as of March 27, 2015 and September 26, 2014 ($ in millions):
 
 
 
 
 
 
 
Consolidated Balance Sheet
Classification
 
As of March 27, 2015
 
Prepaids and
Other Current
Assets
 
Other Assets
Investment Assets:
Level 1
 
Level 2
 
Total
 
 
Available-for-sale securities:


 


 


 


 
 
  Exchange traded funds (fixed income) (1)
$
198

 
$

 
$
198

 
$

 
$
198

  Exchange traded funds (equity) (1)
84

 

 
84

 

 
84

Trading securities:
 
 
 
 
 
 
 
 
 
  Exchange traded funds (equity)
63

 

 
63

 
63

 

 
$
345

 
$

 
$
345

 
$
63

 
$
282

(1) Classified as restricted investments. See Note 11.
 
 
 
 
 
 
 
Consolidated Balance Sheet
Classification
 
As of September 26, 2014
 
Prepaids and
Other Current
Assets
Investment Assets:
Level 1
 
Level 2
 
Total
 
Time deposits
$
275

 
$

 
$
275

 
$
275

Trading Securities:
 
 
 
 
 
 
 
Exchange traded funds (equity)
62

 

 
62

 
62

 
$
337

 
$

 
$
337

 
$
337

During the quarter and six months ended March 27, 2015, the Company did not have any significant transfers between levels within the fair value hierarchy.
Unrealized gains and losses related to trading securities are recorded in Other (expense) income, net in the Consolidated Statements of Operations. Unrealized gains and losses related to available for sale securities are recorded in Other comprehensive income.
Other
The Company had $1.4 billion and $1.5 billion of intercompany loans designated as permanent in nature as of March 27, 2015 and September 26, 2014, respectively. Additionally, for the quarters ended March 27, 2015 and March 28, 2014, the Company recorded $75 million and $7 million of a cumulative translation loss, respectively, through Accumulated other comprehensive loss related to these loans.
For the six months ended March 27, 2015 and March 28, 2014, the Company recorded $145 million of a cumulative translation loss and $4 million of a cumulative translation gain, respectively, through Accumulated other comprehensive loss related to these loans.

21

TYCO INTERNATIONAL PLC
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


11.    Commitments and Contingencies
Legacy Matters Related to Former Management
In recent years, the Company has settled several lawsuits involving disputes with former management. With respect to Dennis Kozlowski, the Company's former chief executive officer, in the first quarter of fiscal 2014, the parties signed an agreement resolving all outstanding disputes, with Mr. Kozlowski agreeing to release the Company from any claims to monetary amounts related to compensation, retention or other arrangements. As a result, in the first quarter of fiscal 2014, the Company reversed a non-cash net liability of approximately $92 million which was recorded in Selling, general and administrative expenses in the Consolidated Statement of Operations for the amounts allegedly due to him. Pursuant to the settlement agreement, 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.
With respect to Mark Swartz, the Company's former chief financial officer, in November 2014, the parties reached a definitive agreement to resolve all outstanding disputes, 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. In the first quarter of fiscal 2015, the Company also received approximately $12 million in cash from Mr. Swartz, $5 million of which will be shared pursuant to the terms of a legacy class action lawsuit, resulting in a net recovery of $7 million for the Company, which was recorded in Selling, general and administrative expenses in the Consolidated Statement of Operations. The cash received has been classified as restricted.
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 March 27, 2015, Tyco concluded that it was probable that it would incur remedial costs in the range of approximately $29 million to $72 million. As of March 27, 2015, Tyco concluded that the best estimate within this range is approximately $33 million, of which $15 million is included in Accrued and other current liabilities and $18 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 March 27, 2015, the Company concluded that its remaining remediation and monitoring costs related to the Marinette facility were in the range of approximately $19 million to $46 million. The Company's best estimate within that range is approximately $22 million, of which $10 million is included in Accrued and other current liabilities and $12 million is included in Other liabilities in the Company's Consolidated Balance Sheet. Although the Company has recorded its best estimate of the costs that it will incur to remediate and monitor the arsenic contamination at the Marinette facility, it is possible that technological, regulatory or enforcement developments, the results of environmental studies or other factors could change the Company's expectations with respect to future charges and cash outlays, and such changes could be material to the Company's future results of operations, financial condition or cash flows.
Asbestos Matters
The Company and certain of its subsidiaries, including Yarway Corporation (“Yarway”) and Grinnell LLC (“Grinnell”), along with numerous other third parties, are named as defendants in personal injury lawsuits based on alleged exposure to asbestos containing materials. Over 90% of cases pending against affiliates of the Company have been filed against Yarway or Grinnell, and have typically involved product liability claims based primarily on allegations of manufacture, sale or distribution of industrial products that either contained asbestos or were used with asbestos containing components. Claims filed against

22

TYCO INTERNATIONAL PLC
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


Yarway derive from Yarway’s purported use of asbestos-containing gaskets and packing in the sale or distribution of steam valves and traps and from its alleged manufacture of asbestos-containing expansion joint packing. Yarway’s alleged manufacture, distribution and/or sale of asbestos-containing materials ceased by 1988, and Yarway ceased substantially all of its manufacturing, distribution and sales operations in 2003. Claims filed against Grinnell typically allege that it manufactured, sold or distributed valves, gaskets, piping and sprinkler systems containing asbestos.
As of March 27, 2015, the Company has determined that there were approximately 5,900 claims pending against it, which includes approximately 3,200 claims pending against Yarway. This amount reflects the Company's current estimate of the number of viable claims made against it 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 by third parties. Additionally, as a result of the Yarway bankruptcy filing described below, claims against Yarway have been stayed since April 2013.
As of March 27, 2015, the Company's estimated net liability, including Yarway, recorded within the Company's Consolidated Balance Sheet is $319 million. The net liability is comprised of a liability for pending and future claims and related defense costs of $846 million, of which $349 million is recorded in Accrued and other current liabilities, and $497 million is recorded in Other liabilities. The Company also maintains separate cash, investment and other assets of $527 million, of which $43 million is recorded in Prepaid expenses and other current assets, and $484 million is recorded in Other assets. Assets include $22 million of cash and $282 million of investments, which have all been designated as restricted. The Company believes that the asbestos related liabilities and insurance related assets as of March 27, 2015 are appropriate. As of September 26, 2014, the Company's estimated net liability, including Yarway, of $608 million was recorded within the Company's Consolidated Balance Sheet as a liability for pending and future claims and related defense costs of $853 million, and separately as an asset for insurance recoveries of $245 million.
Yarway
As previously disclosed, on April 22, 2013 Yarway filed a voluntary petition for relief under Chapter 11 of the U.S. Bankruptcy Code (“Chapter 11”) in the United States Bankruptcy Court for the District of Delaware (“Bankruptcy Court”). As a result of this filing, the continuation or commencement of asbestos-related litigation against Yarway has been enjoined by the automatic stay imposed by the U.S. Bankruptcy Code. Yarway's goal has been to negotiate, obtain approval of, and consummate a plan of reorganization that establishes a trust to fairly and equitably value and pay current and future Yarway asbestos claims, and that, in exchange for funding of the trust by the Company and/or its subsidiaries, provides permanent injunctive relief protecting the Company, each of its current and former affiliates and various other parties (the “Company Protected Parties”) from any further asbestos claims based on products manufactured, sold, and/or distributed by Yarway. On October 9, 2014, the Company reached an agreement in principle with Yarway, the Official Committee of Asbestos Claimants (“ACC”) appointed in the Yarway Chapter 11 case as the representative of current Yarway asbestos claimants, and the Future Claimants Representative (“FCR”) appointed in the Yarway Chapter 11 case as the representative of future Yarway asbestos claimants, to fund a section 524(g) trust for the resolution and payment of current and future Yarway asbestos claims. The agreement in principle will be implemented through a Chapter 11 plan of reorganization for Yarway, and is intended to resolve the potential liability of the Company Protected Parties for pending and future derivative personal injury claims related to exposure to asbestos-containing products that were allegedly manufactured, distributed, and/or sold by Yarway (“Yarway Asbestos Claims”). Under the Chapter 11 plan, an asbestos settlement trust (the “Yarway Trust”) that conforms to the provisions of Section 524(g) of the U.S. Bankruptcy Code will be established and, on the effective date of the Chapter 11 plan, the Company and Yarway will contribute to the Yarway Trust a total of approximately $325 million in cash (“Settlement Consideration”), which includes approximately $100 million relating to the settlement of intercompany amounts allegedly due to Yarway. In exchange for the Settlement Consideration, each of the Company Protected Parties will receive the benefit of a release from Yarway and an injunction under section 524(g) of the Bankruptcy Code permanently enjoining the assertion of Yarway Asbestos Claims against those Parties. On April 8, 2015, following the approval of the Plan by the required number of Yarway's current asbestos claimants, the Bankruptcy Court issued an order confirming the Plan. As a result, the Plan has been filed with the United States District Court for the District of Delaware ("District Court") and is awaiting affirmation by the District Court. There have been no objections filed with respect to the Plan. Upon the District Court's affirmation of the Plan, Yarway and the Plan proponents will schedule an effective date for the Plan, which is anticipated to occur during the Company's third fiscal quarter.
On the effective date of the Plan, the Company and Yarway will pay the Settlement Consideration and Yarway Asbestos Claims against the Company Protected Parties will be permanently enjoined. Yarway is anticipated to become a wholly-owned subsidiary of the Yarway Trust and, accordingly, would no longer be owned by or be part of a consolidated group with the

23

TYCO INTERNATIONAL PLC
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


Company. As a result of the agreement in principle to settle, the Company recorded a charge of $225 million in Selling, general and administrative expenses in the Consolidated Statement of Operations during the fourth fiscal quarter of 2014.
As a result of filing the voluntary bankruptcy petition during the third quarter of fiscal 2013, the Company recorded an expected loss upon deconsolidation of $10 million related to the Yarway Chapter 11 filing, which continues to represent the Company’s best estimate of its loss.
Other Claims
The Company continuously assesses the sufficiency of its estimated liability for pending and future asbestos claims and defense costs. On a quarterly basis, the Company evaluates actual experience regarding asbestos claims filed, settled and dismissed, amounts paid in settlements, and the recoverability of its insurance assets. If and when data from actual experience demonstrate an unfavorable discernible trend, the Company performs a valuation of its asbestos related liabilities and corresponding insurance assets including a comprehensive review of the underlying assumptions. In addition, the Company evaluates its ability to reasonably estimate claim activity beyond its current look-forward period in order to assess whether such period is appropriate. In addition to claims and litigation experience, the Company considers additional qualitative and quantitative factors such as changes in legislation, the legal environment, the Company’s strategy in managing claims and obtaining insurance, including its defense strategy, and health related trends in the overall population of individuals potentially exposed to asbestos. 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 assets is warranted.
During the fourth quarter of fiscal 2014, the Company concluded that an unfavorable trend had developed in actual claim filing activity compared to projected claim filing activity established during the Company’s most recent valuation. Accordingly, the Company, with the assistance of independent actuarial service providers, performed a revised valuation of its asbestos-related liabilities and corresponding insurance assets. As part of the revised valuation, the Company assessed whether a change in its look-forward period was appropriate, taking into consideration its more extensive history and experience with asbestos-related claims and litigation (including its experience with Yarway), and determined that it was possible to make a reasonable estimate of the actuarially determined ultimate risk of loss for pending and unasserted potential future asbestos-related claims through 2056. In connection with the revised valuation, the Company considered a recent settlement with one of its insurers calling for the establishment of a qualified settlement fund, and the results of a separate independent actuarial consulting firm report conducted in the fourth quarter to assist the Company in obtaining insurance to fully fund all estimable asbestos-related claims (excluding Yarway claims) incurred through 2056.
The independent actuarial service firm calculated a total estimated liability for asbestos-related claims of the Company, which reflects the Company’s best estimate of its ultimate risk of loss to resolve all pending and future claims (excluding Yarway claims) through 2056, which is the Company’s reasonable best estimate of the actuarially determined time period through which asbestos-related claims will be filed against Company affiliates.
In conjunction with determining the total estimated liability, the Company retained an independent third party to assist it in valuing its insurance assets responsive to asbestos-related claims, excluding Yarway claims. These insurance assets represent amounts due to the Company for previously settled claims and the probable reimbursements relating to its total liability for pending and unasserted potential future asbestos claims and defense costs. In calculating this amount, the Company used the estimated asbestos liability for pending and projected future claims and defense costs described above, and it also considered the amount of insurance available, the solvency risk with respect to the Company's insurance carriers, resolution of insurance coverage issues, gaps in coverage, allocation methodologies, and the terms of existing settlement agreements with insurance carriers.
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 identity of defendants, 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

24

TYCO INTERNATIONAL PLC
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


recoveries could be significantly higher or lower than those recorded if assumptions used in the Company's calculations vary significantly from actual results.
In connection with the foregoing, during the third quarter of fiscal 2014, the Company resolved disputes with certain of its historical insurers and agreed that certain insurance proceeds would be used to establish and fund a qualified settlement fund (“QSF”), within the meaning of the Internal Revenue Code, which would be used for the resolution primarily of Grinnell asbestos liabilities of the Company. It is intended that the QSF will receive future insurance payments and proceeds from third party insurers and, in addition, will fund and manage liabilities for certain historical operations of the Company. On January 9, 2015, the Company completed a series of restructuring transactions related to the establishment and funding of a dedicated structure pursuant to which a subsidiary of the Company acquired the assets of Grinnell and transferred cash and other assets totaling approximately $278 million (not including $22 million received by the QSF during the quarter ended December 26, 2014 from historic third-party insurers in settlement of coverage disputes) to the structure. As part of the restructuring, subsidiaries in the structure assumed certain liabilities related to historic Grinnell, Scott and Figgie operations, including all historical Grinnell asbestos liabilities, and such subsidiaries purchased additional insurance by, through or from a wholly-owned subsidiary in the structure in order to supplement and enhance existing insurance assets. The structure and the QSF fully fund all historic Grinnell asbestos liabilities and provide for the efficient and streamlined management of claims related thereto.

The Company consolidates the qualified settlement fund and related entities that were established for the purpose of managing and resolving the liabilities described above. Although the entities in the dedicated structure serve the specific purpose of managing certain liabilities, each entity in the structure is a wholly-owned indirect subsidiary of the Company, and therefore is required to be consolidated under U.S. generally accepted accounting principles.

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 Medtronic and TE Connectivity (the "2007 Tax Sharing Agreement") under which Tyco, Medtronic 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, Medtronic'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 has been 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. A trial date has been set for February 2016. 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

25

TYCO INTERNATIONAL PLC
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


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
As previously disclosed, SimplexGrinnell LP (“SG”), a subsidiary of the Company in the North America Installation & Services segment, has been named as a defendant in lawsuits in several jurisdictions seeking damages for SG’s alleged failure to pay prevailing wages and for other pay-related claims. Through the first quarter of fiscal 2015, the Company had recorded a total of approximately $17 million in charges related to these lawsuits, which was recorded in the Cost of services within the Consolidated Statement of Operations. During the quarter ended March 27, 2015, the Company agreed in principle to settle all outstanding lawsuits for a total of approximately $14 million.
During the first quarter of fiscal 2015, the Company received and responded to inquiries from the U.S. Department of the Navy regarding the formulation of certain aqueous film forming foam ("AFFF") concentrates. The Company investigated such matters and ceased selling certain AFFF and other foam products pending the outcome of its investigation. During the course of the investigation, three AFFF products were removed from the Navy’s Qualified Products List ("QPL"); one AFFF product remains on the QPL. The Company has shared the results of its investigation with appropriate governmental authorities and is also communicating with the government regarding the re-qualification of these products. The government has confirmed that it considers the Company to be “presently responsible,” and that no suspension or debarment is warranted. At this time, we cannot predict the outcome of these inquiries and whether this will result in further action by the Navy or other governmental authorities, but it is possible that the Company could be required to pay material fines, consent to injunctions on future conduct, or suffer other criminal or civil penalties or adverse impacts, including being subject to lawsuits brought by private litigants, each of which may have a material adverse effect on the Company’s financial position, results of operations or cash flows.

In addition to the foregoing, the Company is subject to claims and suits, including from time to time, contractual disputes and product and general liability claims, incidental to present and former operations, acquisitions and dispositions. With respect to many of these claims, the Company either self-insures or maintains insurance through third-parties, with varying deductibles. While the ultimate outcome of these matters cannot be predicted with certainty, the Company believes that the resolution of any such proceedings, whether the underlying claims are covered by insurance or not, will not have a material adverse effect on the Company's financial condition, results of operations or cash flows beyond amounts recorded for such matters.
12.    Retirement Plans
Defined Benefit Pension Plans—The Company sponsors a number of pension plans. The following disclosures exclude the impact of plans which are immaterial individually and in the aggregate. The net periodic benefit cost for the Company's material U.S. and non-U.S. defined benefit pension plans is as follows ($ in millions):
 
U.S. Plans
 
For the Quarters Ended
 
For the Six Months Ended
 
March 27, 2015
 
March 28, 2014
 
March 27, 2015
 
March 28, 2014
Service cost
$
2

 
$
2

 
$
4

 
$
4

Interest cost
9

 
9

 
18

 
18

Expected return on plan assets
(14
)
 
(12
)
 
(28
)
 
(24
)
Amortization of net actuarial loss
2

 
2

 
4

 
4

Net periodic benefit cost
$
(1
)
 
$
1

 
$
(2
)
 
$
2


26

TYCO INTERNATIONAL PLC
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


 
Non-U.S. Plans
 
For the Quarters Ended
 
For the Six Months Ended
 
March 27, 2015
 
March 28, 2014
 
March 27, 2015
 
March 28, 2014
Service cost
$
3

 
$
2

 
$
5

 
$
5

Interest cost
13

 
14

 
26

 
28

Expected return on plan assets
(19
)
 
(18
)
 
(39
)
 
(37
)
Amortization of net actuarial loss
3

 
3

 
7

 
6

Net periodic benefit cost
$

 
$
1

 
$
(1
)
 
$
2

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, and the amount for non-U.S. pension benefit plans is expected to be $14 million. Amortization of net periodic benefit cost from accumulated other comprehensive loss for the Company'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 2015 of $13 million for U.S. plans and $23 million for non-U.S. plans. During the quarter ended March 27, 2015, the Company made required contributions of $3 million to its U.S. pension plans and $4 million to its non-U.S. pension plans. During the six months ended March 27, 2015, the Company made required contributions of $4 million to its U.S. pension plans and $9 million to its non-U.S. pension plans.
Postretirement Benefit Plans—Net periodic postretirement benefit cost was not material for both periods.
13.    Equity and Comprehensive Income
Authorized Share Capital
As a result of the Merger, the Company’s authorized share capital changed. The authorized share capital of Tyco Ireland is $11,000,000 and €40,000, divided into 1,000,000,000 ordinary shares with a par value of $0.01 per share, 100,000,000 preferred shares with a par value of $0.01 per share and 40,000 ordinary A shares with a par value of €1.00 per share. The authorized share capital includes 40,000 ordinary A shares with a par value of €1.00 per share in order to satisfy statutory requirements for the incorporation of all Irish public limited companies. Tyco Ireland may issue shares subject to the maximum prescribed by its authorized share capital contained in its memorandum of association. In connection with the Merger, Tyco Ireland canceled all the outstanding treasury shares, including shares held by subsidiaries, with an offsetting reduction in Additional paid in capital.
Issued Share Capital
Tyco Ireland issued one ordinary share in exchange for each common share of Tyco Switzerland to the former shareholders of Tyco Switzerland. All Tyco Ireland ordinary shares issued at the effective time of the Merger were issued as fully paid-up and non-assessable.
Dividends
On March 4, 2015, the Board of Directors approved a quarterly dividend of $0.205 per share payable on May 20, 2015 to shareholders of record on April 24, 2015.
On March 5, 2014, the Company's shareholders approved an annual cash dividend of $0.72 per ordinary share. Payment of the dividend was made in four quarterly installments of $0.18 from May 2014 through February 2015. As a result, during the quarter ended March 28, 2014, the Company recorded an accrued dividend of $332 million within Accrued and other current liabilities and a corresponding reduction to Additional paid in capital on the Company's Consolidated Balance Sheet.

27

TYCO INTERNATIONAL PLC
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


The timing, declaration and payment of future dividends to holders of our ordinary shares will be determined by the Company's Board of Directors and will depend upon many factors, including Tyco's financial condition and results of operations, the capital requirements of the Company's businesses, industry practice and any other relevant factors.
Under Irish law, dividends may only be paid (and share repurchases and redemptions must generally be funded) out of “distributable reserves.” The creation of distributable reserves of Tyco Ireland was accomplished by way of a capital reduction of Tyco Ireland, which the Irish High Court approved on December 18, 2014.
Share Repurchase Program
The Company's Board of Directors approved $1.75 billion and $1 billion share repurchase programs in March 2014 and September 2014, respectively. During the quarter ended December 26, 2014, the Company repurchased a total of approximately 10 million shares for approximately $417 million which completed the $1.75 billion share repurchase program. No shares were repurchased during the quarter ended March 27, 2015. As of March 27, 2015, a total of approximately $1 billion in share repurchase authority remained outstanding.
Comprehensive (Loss) Income
Comprehensive (loss) income is comprised of the following ($ in millions):
 
For the Quarters Ended
 
For the Six Months Ended
 
March 27,
2015
 
March 28,
2014
 
March 27,
2015
 
March 28,
2014
Net income
$
165

 
$
207

 
$
326

 
$
479

Foreign currency translation (1)
(176
)
 
(15
)
 
(374
)
 
(52
)
Amortization of net actuarial losses (2)
5

 
5

 
11

 
10

Income tax expense
(1
)
 
(1
)
 
(2
)
 
(3
)
Defined benefit and post retirement plans, net of tax
4

 
4

 
9

 
7

  Total other comprehensive loss, net of tax
(172
)
 
(11
)
 
(365
)
 
(45
)
Comprehensive (loss) income
(7
)
 
196

 
(39
)
 
434

Less: comprehensive (loss) income attributable to noncontrolling interests
(2
)
 

 
(3
)
 
2

Comprehensive (loss) income attributable to Tyco ordinary shareholders
$