10-Q 1 tyc-2016624x10q.htm 10-Q Document
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________________________________________
FORM 10-Q
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 24, 2016
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)
1 Albert Quay,
Albert Quay, Cork, Ireland
(Address of registrant's principal executive office)
353-21-426-0000
(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 July 22, 2016 was 426,224,367.
 



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 Nine Months Ended
 
June 24,
2016
 
June 26,
2015
 
June 24,
2016
 
June 26,
2015
Revenue from product sales
$
1,487

 
$
1,511

 
$
4,293

 
$
4,457

Service revenue
962

 
978

 
2,863

 
2,940

Net revenue
2,449

 
2,489

 
7,156

 
7,397

Cost of product sales
1,026

 
1,025

 
2,956

 
3,046

Cost of services
508

 
548

 
1,550

 
1,645

Selling, general and administrative expenses
667

 
625

 
1,842

 
1,925

Merger costs (see Note 2)
7

 

 
33

 

Restructuring and asset impairment charges, net (see Note 4)
5

 
38

 
21

 
108

Operating income
236

 
253

 
754

 
673

Interest income
3

 
4

 
11

 
11

Interest expense
(22
)
 
(26
)
 
(68
)
 
(75
)
Other income (expense), net
54

 
6

 
(111
)
 
9

Income from continuing operations before income taxes
271

 
237

 
586

 
618

Income tax expense
(31
)
 
(49
)
 
(130
)
 
(86
)
Income from continuing operations
240

 
188

 
456

 
532

(Loss) income from discontinued operations, net of income taxes
(2
)
 
(32
)
 
3

 
(50
)
Net income
238

 
156

 
459

 
482

Less: noncontrolling interest in subsidiaries net loss
(1
)
 

 
(2
)
 
(3
)
Net income attributable to Tyco ordinary shareholders
$
239

 
$
156

 
$
461

 
$
485

Amounts attributable to Tyco ordinary shareholders:
 

 
 

 
 
 
 
Income from continuing operations
$
241

 
$
188

 
$
458

 
$
535

(Loss) income from discontinued operations
(2
)
 
(32
)
 
3

 
(50
)
Net income attributable to Tyco ordinary shareholders
$
239

 
$
156

 
$
461

 
$
485

Basic earnings per share attributable to Tyco ordinary shareholders:
 

 
 

 
 
 
 
Income from continuing operations
$
0.57

 
$
0.45

 
$
1.08

 
$
1.27

Loss from discontinued operations
(0.01
)
 
(0.08
)
 

 
(0.12
)
Net income attributable to Tyco ordinary shareholders
$
0.56

 
$
0.37

 
$
1.08

 
$
1.15

Diluted earnings per share attributable to Tyco ordinary shareholders:
 

 
 

 
 
 
 
Income from continuing operations
$
0.56

 
$
0.44

 
$
1.07

 
$
1.25

(Loss) income from discontinued operations

 
(0.07
)
 
0.01

 
(0.11
)
Net income attributable to Tyco ordinary shareholders
$
0.56

 
$
0.37

 
$
1.08

 
$
1.14

Weighted average number of shares outstanding:
 

 
 

 
 
 
 
Basic
426

 
421

 
425

 
421

Diluted
429

 
427

 
428

 
427

   

See Notes to Unaudited Consolidated Financial Statements.

3


TYCO INTERNATIONAL PLC
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED)
(in millions)
 
For the Quarters Ended
 
For the Nine Months Ended
 
June 24,
2016
 
June 26,
2015
 
June 24,
2016
 
June 26,
2015
Net income
$
238

 
$
156

 
$
459

 
$
482

Other comprehensive income (loss), net of tax
 
 
 
 
 
 
 
Foreign currency translation
6

 
28

 
7

 
(346
)
Defined benefit and post retirement plans
5

 
4

 
13

 
13

Unrealized gain (loss) on marketable securities and derivative instruments, net of tax
3

 
(4
)
 
6

 
(4
)
Total other comprehensive income (loss), net of tax
14

 
28

 
26

 
(337
)
Comprehensive income
252

 
184

 
485

 
145

Less: comprehensive loss attributable to noncontrolling interests
(1
)
 

 
(2
)
 
(3
)
Comprehensive income attributable to Tyco ordinary shareholders
$
253

 
$
184

 
$
487

 
$
148

   See Notes to Unaudited Consolidated Financial Statements.

4


TYCO INTERNATIONAL PLC
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(in millions, except per share data)
 
June 24,
2016
 
September 25,
2015
Assets
 
 
 
Current Assets:
 
 
 
Cash and cash equivalents
$
345

 
$
1,401

Accounts receivable, less allowance for doubtful accounts of $78 and $68, respectively
1,805

 
1,722

Inventories
656

 
620

Prepaid expenses and other current assets
883

 
750

Deferred income taxes
62

 
62

Assets held for sale
71

 
208

Total Current Assets
3,822

 
4,763

Property, plant and equipment, net
1,180

 
1,166

Goodwill
4,418

 
4,203

Intangible assets, net
966

 
822

Other assets
1,228

 
1,367

Total Assets
$
11,614

 
$
12,321

Liabilities and Equity
 
 
 
Current Liabilities:
 
 
 
Loans payable and current maturities of long-term debt
$
341

 
$
987

Accounts payable
799

 
764

Accrued and other current liabilities
1,564

 
1,644

Deferred revenue
378

 
379

Liabilities held for sale
34

 
80

Total Current Liabilities
3,116

 
3,854

Long-term debt
2,165

 
2,159

Deferred revenue
284

 
302

Other liabilities
1,663

 
1,930

Total Liabilities
7,228

 
8,245

Commitments and Contingencies (see Note 11)


 

Tyco Shareholders' Equity:
 
 
 
Ordinary shares, $0.01 par value, 1,000,000,000 shares authorized, and 426,593,392 and 422,400,870 shares issued as of June 24, 2016 and September 25, 2015, respectively
4

 
4

Ordinary A shares, €1.00 par value, 40,000 shares authorized, none outstanding as of June 24, 2016 and September 25, 2015

 

Preference shares, $0.01 par value, 100,000,000 shares authorized, none outstanding as of June 24, 2016 and September 25, 2015

 

Ordinary shares held in treasury, 412,594 and 79,770 shares as of June 24, 2016 and September 25, 2015, respectively
(15
)
 
(3
)
Additional paid in capital
813

 
716

Accumulated earnings
5,364

 
5,165

Accumulated other comprehensive loss
(1,815
)
 
(1,841
)
Total Tyco Shareholders' Equity
4,351

 
4,041

Nonredeemable noncontrolling interest
35

 
35

Total Equity
4,386

 
4,076

Total Liabilities and Equity
$
11,614

 
$
12,321

See Notes to Unaudited Consolidated Financial Statements.

5


TYCO INTERNATIONAL PLC
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(in millions)
 
For the Nine Months Ended
 
June 24,
2016
 
June 26,
2015
Cash Flows From Operating Activities:
 
 
 
Net income attributable to Tyco ordinary shareholders
$
461

 
$
485

Noncontrolling interest in subsidiaries net loss
(2
)
 
(3
)
(Income) loss from discontinued operations, net of income taxes
(3
)
 
50

Income from continuing operations
456

 
532

Adjustments to reconcile net cash provided by operating activities:
 
 
 
Depreciation and amortization
250

 
257

Non-cash compensation expense
39

 
44

Deferred income taxes
89

 
(1
)
Provision for losses on accounts receivable and inventory
50

 
37

Loss on extinguishment of debt
168



Legacy legal matters
(18
)
 

Loss on divestitures, net
107

 
19

Gain on investments, net
(114
)
 
(15
)
(Gain) loss on tax sharing agreements
(54
)
 
2

Other non-cash items
10

 
8

Changes in assets and liabilities, net of the effects of acquisitions and divestitures:
 
 
 
Accounts receivable, net
(65
)
 
(104
)
Contracts in progress
(69
)
 
8

Inventories
(55
)
 
(72
)
Prepaid expenses and other assets
(29
)
 
(55
)
Accounts payable
14

 
(78
)
Accrued and other liabilities
(149
)
 
(34
)
Tax sharing agreement, net (Note 6)
(138
)
 

Income taxes, net
(11
)
 
4

Other
23

 
(41
)
Net cash provided by operating activities
504

 
511

Net cash used in discontinued operating activities
(12
)
 
(1
)
Cash Flows From Investing Activities:
 
 
 
Capital expenditures
(209
)
 
(183
)
Acquisition of businesses, net of cash acquired
(320
)
 
(525
)
Acquisition of dealer generated customer accounts and bulk account purchases
(17
)
 
(13
)
Divestiture of businesses, net of cash divested
14

 
(1
)
Sales and maturities of investments including restricted investments
26

 
283

Purchases of investments including restricted investments
(8
)
 
(290
)
Decrease (increase) in restricted cash
3

 
(27
)
Other

 
4

Net cash used in investing activities
(511
)
 
(752
)
Net cash provided by (used in) discontinued investing activities
4

 
(37
)
Cash Flows From Financing Activities:
 
 
 
Proceeds from issuance of short-term debt
4,179

 
258

Repayment of short-term debt
(3,838
)
 
(259
)
Repayment of current portion of long-term debt
(1,134
)
 

Proceeds from issuance of long-term debt

 
570

Proceeds from exercise of share options
57

 
70

Dividends paid
(261
)
 
(237
)
Repurchase of ordinary shares

 
(417
)
Transfer to discontinued operations
(8
)
 
(38
)
Payment of contingent consideration
(1
)
 
(23
)
Debt financing costs
(23
)
 
(5
)
Other
(12
)
 
(21
)
Net cash used in financing activities
(1,041
)
 
(102
)
Net cash provided by discontinued financing activities
8

 
38

Effect of currency translation on cash
(8
)
 
(18
)
Net decrease in cash and cash equivalents
(1,056
)
 
(361
)
Cash and cash equivalents at beginning of period
1,401

 
892

Cash and cash equivalents at end of period
$
345

 
$
531

See Notes to Unaudited Consolidated Financial Statements.

6


TYCO INTERNATIONAL PLC
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (UNAUDITED)
For the Nine Months Ended June 24, 2016 and June 26, 2015
(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 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
 
 
 
 
 
 
 
 
485

 
 
 
485

 
(3
)
 
482

Other comprehensive loss, net of tax
 
 
 
 
 
 
 
 
 
 
(337
)
 
(337
)
 
 
 
(337
)
Cancellation of treasury shares
 
 
(34
)
 
2,878

 
(2,844
)
 
 
 
 
 

 
 
 

Dividends declared
 
 
 
 
 
 
2

 
(172
)
 
 
 
(170
)
 
 
 
(170
)
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

 
3

 
 
 
 
 
70

 
 

 
70

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

 
(417
)
Compensation expense
 
 
 
 
 
 
44

 
 
 
 
 
44

 
 

 
44

Noncontrolling interest related to acquisitions and divestitures
 
 
 
 
 
 
 
 
 
 
 
 

 
16

 
16

Other
 
 
 
 
(13
)
 
(5
)
 
 
 
 
 
(18
)
 
(1
)
 
(19
)
Balance as of June 26, 2015
421

 
$
4

 
$

 
$
676

 
$
5,186

 
$
(1,562
)
 
$
4,304

 
$
35

 
$
4,339


 
Number of
Ordinary
Shares
 
Ordinary
Shares at
Par Value
 
Treasury
Shares
 
Additional Paid in Capital
 
Accumulated
Earnings
 
Accumulated
Other
Comprehensive
(Loss) Income
 
Total Tyco
Shareholders'
Equity
 
Nonredeemable
Noncontrolling
Interest
 
Total
Equity
Balance as of September 25, 2015
422

 
$
4

 
$
(3
)
 
$
716

 
$
5,165

 
$
(1,841
)
 
$
4,041

 
$
35

 
$
4,076

Comprehensive income:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income attributable to Tyco ordinary shareholders
 
 
 
 
 
 
 
 
461

 
 
 
461

 
(2
)
 
459

Other comprehensive income, net of tax
 
 
 
 
 
 
 
 
 
 
26

 
26

 
 
 
26

Dividends declared
 
 
 
 
 
 
 
 
(262
)
 
 
 
(262
)
 
 
 
(262
)
Shares issued for vesting of share based equity awards
4

 
 
 
 
 
57

 
 
 
 
 
57

 
 
 
57

Compensation expense
 
 
 
 
 
 
39

 
 
 
 
 
39

 
 
 
39

Other


 
 
 
(12
)
 
1

 
 
 
 
 
(11
)
 
2

 
(9
)
Balance as of June 24, 2016
426

 
$
4

 
$
(15
)
 
$
813

 
$
5,364

 
$
(1,815
)
 
$
4,351

 
$
35

 
$
4,386

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 25, 2015 (the "2015 Form 10-K") and Current Report filed on Form 8-K filed on March 11, 2016 which recast the Company's consolidated financial statements for each of the three years in the period ended September 25, 2015 to reflect changes in the presentation of operating income by segment. The information included in this Form 8-K was presented for informational purposes only and does not amend or restate the Company’s audited consolidated financial statements, which were included in its 2015 Form 10-K, and did not affect the Company’s previously reported net income, earnings per share, cash flows, operating income or assets or liabilities for any of the periods presented therein.
References to 2016 and 2015 are to Tyco's fiscal quarters ending June 24, 2016 and June 26, 2015, respectively, unless otherwise indicated. The Company has a 52- or 53-week fiscal year that ends on the last Friday in September. Fiscal 2016 is a 53-week year as compared with fiscal 2015, which was 52 weeks, with the additional week occurring in the fourth quarter of fiscal 2016. The Company's results for the quarters and nine months ended June 24, 2016 and June 26, 2015 both consisted of 13 weeks and 39 weeks, respectively.
The Company operates and reports financial and operating information in the following three segments: North America Integrated Solutions & Services ("NA Integrated Solutions & Services"), Rest of World Integrated Solutions & Services ("ROW Integrated Solutions & Services") and Global Products. The Company also provides general corporate services to its segments which is reported as a fourth, non-operating segment, Corporate and Other.
Proposed Merger with Johnson Controls, Inc.— On January 24, 2016, Tyco entered into an Agreement and Plan of Merger (as amended, the “Merger Agreement”) with Johnson Controls, Inc., a Wisconsin corporation (“Johnson Controls”), and certain other parties named therein (which was subsequently amended by Amendment No. 1 on July 1, 2016), including Jagara Merger Sub LLC, a Wisconsin limited liability company and indirect wholly owned subsidiary of Tyco (“Merger Sub”). Pursuant to the Merger Agreement and subject to the terms and conditions set forth therein, Merger Sub will merge with and into Johnson Controls (the “Merger”), with Johnson Controls surviving the Merger as an indirect wholly owned subsidiary of Tyco. At the effective time of the Merger, Tyco will change its name to “Johnson Controls International plc” and will trade under the ticker symbol “JCI.” Following such time, Tyco is referred to below as the “Combined Company.”
As a result of the Merger, each outstanding share of Johnson Controls common stock (the “Johnson Controls Shares”), other than shares held by Johnson Controls, its subsidiaries, Tyco or Merger Sub, will be converted into the right to receive (subject to proration as described below), at the holder’s election, either: (i) one (1) (the “Exchange Ratio”) ordinary share of the Combined Company (the “Share Consideration”); or (ii) an amount in cash equal to $34.88 (the “Cash Consideration”). Elections will be prorated so that Johnson Controls shareholders will receive in the aggregate approximately $3.864 billion of cash in the Merger (the “Aggregate Cash Consideration”). Holders that do not make an election will be treated as having elected to receive the Share Consideration. The Exchange Ratio takes into account the effects of a Tyco share consolidation contemplated by the Merger Agreement whereby, immediately prior to the Merger, every issued and unissued ordinary share of Tyco (each, a “Tyco Share”) will be consolidated into 0.955 of a share of Tyco.
The completion of the Merger is subject to certain closing conditions, including, among others, (i) the approval and adoption of the Merger Agreement by holders of two-thirds of the Johnson Controls Shares entitled to vote on such matter, (ii) the approval by the Tyco shareholders, at a special meeting of the Tyco shareholders (the “Tyco Special Meeting”) of (A) the issuance of Tyco shares in connection with the Merger, (B) the Tyco share consolidation and (C) the increase in Tyco’s authorized share capital, in each case, by a majority of the votes cast on these matters at the Tyco Special Meeting, and of certain amendments to Tyco’s articles of association, including a change of its name to “Johnson Controls International plc,” by at least 75% of the votes cast on these matters at the Tyco Special Meeting (clause (ii), collectively, the “Tyco Shareholder

8

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


Approvals”), (iii) the expiration or termination of any waiting period applicable to the Merger under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, the consent of, or filing with, certain specified antitrust authorities, and certain other customary regulatory approvals, and (iv) Tyco’s obtaining the financing required to close the Merger on the terms set forth in the Merger Agreement.
The Merger Agreement contains specified termination rights, including, among others, the right of either party to terminate the Merger Agreement (i) if the requisite shareholder approvals have not been obtained, (ii) if the board of directors of the other party effects a change of recommendation, (iii) if the closing has not occurred by October 24, 2016, subject to extension to January 24, 2017 in certain circumstances, (iv) in response to certain intervening events (subject to the limitations set forth in the Merger Agreement) or (v) if there is a material breach by the other party of any of its representations, warranties or covenants, subject to certain conditions.
Tyco has entered into a senior unsecured term loan facility in the amount of $4 billion to finance the cash consideration for, and fees, expenses and costs incurred in connection with, the merger. In addition, the Company has entered into a revolving credit agreement in the amount of $1 billion, which is intended to replace Tyco's existing $1.5 billion revolving credit agreement. Tyco's ability to draw down on both the term loan facility and the new revolving credit agreement is contingent on the consummation of the merger with Johnson Controls. See Note 9.
Change of Jurisdiction— On May 30, 2014, Tyco entered into a Merger Agreement with Tyco International plc, a newly-formed Irish public limited company and a wholly-owned subsidiary of Tyco ("Tyco Ireland"). Under the Merger Agreement with Tyco Ireland, Tyco merged with and into Tyco Ireland, with Tyco Ireland being the surviving company. This resulted in Tyco Ireland becoming Tyco's publicly-traded parent company and changed the jurisdiction of organization of Tyco from Switzerland to Ireland. Tyco's shareholders received one ordinary share of Tyco Ireland for each ordinary share of Tyco held immediately prior to the re-domicile to Ireland. The re-domicile to Ireland became effective on November 17, 2014.
Reclassifications— Certain prior period amounts have been reclassified to conform with the current period presentation.
Effective for the first quarter of fiscal 2016, the Company has elected to present operating income by segment, as well as Corporate and Other, excluding restructuring and repositioning charges, net. Restructuring and repositioning charges, net, are shown in aggregate. This presentation is consistent with how management reviews the businesses, makes investing and resource decisions and assesses operating performance. See Note 15.
During the third quarter of fiscal 2016, the Company reclassified the assets and liabilities of a business it plans to sell within the ROW Integrated Solutions & Services segment as held for sale for all periods presented within the Consolidated Balance Sheets. As of June 24, 2016, assets of $71 million and liabilities of $34 million were reclassified as held for sale related to this business. The results of operations of this business are included in continuing operations, as the criteria to be presented as a discontinued operation were not satisfied. During the second quarter of fiscal 2016, the Company completed the sale of its Australian fire protection business, included in the ROW Integrated Solutions & Services segment. The assets and liabilities related to this business were classified as held for sale as of September 25, 2015. Its results of operations are included in continuing operations, as the criteria to be presented as a discontinued operation were not satisfied. See Note 3.
Recently Adopted Accounting Pronouncements— In April 2014, the Financial Accounting Standards Board ("FASB") issued authoritative guidance to change the criteria for reporting discontinued operations. Under the new guidance, only disposals representing a strategic shift that has or will have a major effect on the Company's operations and financial results should be reported as discontinued operations, with expanded disclosures. The guidance became effective for Tyco in the first quarter of fiscal 2016. The Company considers both qualitative and quantitative factors when assessing whether a disposed business represents a strategic shift that will have a major effect on the Company's operations and financial results. The Company considers the level (e.g. individual business or product line, reporting unit or reportable segment) and geographic impact (e.g. country, region, worldwide) of the disposal group. In addition, the Company considers the significance of the disposed business on certain financial measures when assessing whether or not such disposal has a major effect on the Company's operations and financial results. The adoption of this guidance did not have a material impact on the Company's financial position, results of operations or cash flows. During fiscal 2016, the divestiture of the Company's Australian fire protection business and the planned sale of another business within its ROW Integrated Solutions & Services segment did not meet the criteria set forth in the new guidance and therefore were not classified as discontinued operations. See Note 3.
Recently Issued Accounting Pronouncements— 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

9

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


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 quantitative and qualitative disclosures that are more comprehensive than existing standards. The disclosures are intended to enable financial statement users to understand the nature, timing and uncertainty of revenue and the related cash flow. The new standard permits either the full retrospective method or the modified retrospective method of adoption. In August 2015, the FASB issued authoritative guidance to defer the effective date of this guidance, which for Tyco will be the first quarter of fiscal 2019, with early adoption permitted beginning the first quarter of fiscal 2018. In March 2016, the FASB issued additional authoritative guidance clarifying its implementation guidance on principal versus agent considerations when determining whether to report revenue gross versus net. In April 2016, the FASB issued additional authoritative guidance clarifying issues related to identifying performance obligations and licensing. In May 2016, the FASB issued additional authoritative guidance specifically in the areas of assessing collectability, presentation of sales taxes, noncash consideration, and completed contracts and contract modifications. The Company is in the process of assessing the impact the guidance is expected to have upon adoption, including determining the adoption method.
In May 2015, the FASB issued authoritative guidance that is intended to improve the existing disclosure requirements for short-duration contracts for insurance entities that issue such contracts. The guidance requires additional information to be disclosed about the liability for unpaid claims and claim adjustment expenses to increase the transparency of significant estimates made in measuring those liabilities. This guidance is effective for Tyco in the first quarter of fiscal 2017, with early adoption permitted. The Company is currently assessing the impact, if any, the guidance may have upon adoption.
In July 2015, the FASB issued authoritative guidance intended to simplify the existing guidance under which an entity must measure inventory at the lower of cost or market. Under the new guidance, inventory is “measured at the lower of cost and net realizable value,” and does not apply to inventory that is measured using last-in, first-out or the retail method. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. This guidance is effective for Tyco in the first quarter of fiscal 2017, with early adoption permitted on a prospective basis. The Company is currently assessing the impact, if any, the guidance may have upon adoption.

In September 2015, the FASB issued authoritative guidance intended to reduce the cost and complexity of financial reporting when recognizing adjustments to provisional amounts in connection with a business combination. This guidance eliminates the requirement to restate prior period financial statements, but requires entities to present separately on the face of the income statement, or disclose in the notes, the portion of the amount recorded in current-period earnings by line item that would have been recorded in previous reporting periods if the adjustment to the provisional amounts had been recognized as of the acquisition date. This guidance is effective for Tyco in the first quarter of fiscal 2017, with early adoption permitted on a prospective basis. The Company is currently assessing the impact, if any, the guidance may have upon adoption.

In November 2015, the FASB issued authoritative guidance intended to simplify the presentation of deferred income taxes. Under the new guidance, deferred tax liabilities and deferred tax assets are to be classified as noncurrent in a classified statement of financial position. The current requirement that deferred tax liabilities and assets of a tax-paying component of an entity be offset and presented as a single amount is not affected by the amendments in this update. This guidance is effective for Tyco in the first quarter of fiscal 2018, with early adoption permitted on a prospective or retrospective basis. The Company plans to adopt this guidance as of September 30, 2016 and does not expect the guidance to have a material impact on its financial statements.

In January 2016, the FASB issued authoritative guidance addressing the recognition, measurement, presentation and disclosure of financial assets and liabilities. The guidance primarily affects the accounting for equity investments, financial liabilities under the fair value option and the presentation and disclosure requirements for financial instruments. In addition, the guidance clarifies the valuation allowance assessment when recognizing deferred tax assets resulting from unrealized losses on available-for-sale debt securities. This guidance is effective for Tyco in the first quarter of fiscal 2019, and early adoption is not permitted, with certain exceptions. The amendments are required to be applied by means of a cumulative-effect adjustment on the balance sheet as of the beginning of the fiscal year of adoption. The Company is currently assessing the impact, if any, the guidance may have upon adoption.


10

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


In February 2016, the FASB issued authoritative guidance requiring the recognition of lease assets and lease liabilities by lessees for those leases previously classified as operating leases. The guidance requires quantitative and qualitative disclosures that are more comprehensive than existing standards. The disclosures are intended to enable financial statement users to understand the amount, timing and uncertainty of cash flows arising from leases. This guidance is effective for Tyco in the first quarter of fiscal 2020 with early adoption permitted. The amendments are required to be applied by means of a modified retrospective approach. The Company is currently assessing the impact, if any, the guidance may have upon adoption.

In March 2016, the FASB amended its authoritative guidance for employee share-based payment transactions by simplifying several aspects of the accounting for employee share-based payment awards, including the accounting for income taxes, withholding taxes and forfeitures, as well as classification on the statement of cash flows. The amended guidance is effective for Tyco in the first quarter of fiscal 2018 with early adoption permitted. The Company is currently assessing the impact, if any, the guidance may have upon adoption.

In June 2016, the FASB issued authoritative guidance amending the impairment model for most financial assets by requiring a new forward-looking “expected loss” methodology that will replace today’s “incurred loss” methodology and generally result in the more timely recognition of allowances for credit losses. Furthermore, additional disclosures will be required. The guidance is effective for Tyco in the first quarter of fiscal 2021, with early adoption permitted in the first quarter of fiscal 2020. The Company is in the process of assessing the timing and impact, if any, the guidance may have upon adoption.
2.    Merger Costs
On January 24, 2016, Tyco entered into a Merger Agreement with Johnson Controls. See Note 1. The Company expects to incur transaction related costs ("Merger Costs") in connection with activities taken in anticipation of the Merger, primarily related to financing, investment banking, advisory, legal, valuation, and other professional fees, and retention related costs for certain Tyco employees. The Company incurred pre-tax merger costs within continuing operations of $19 million and $45 million during the quarter and nine months ended June 24, 2016, respectively, primarily related to financing, advisory and professional fees. The Company received no tax benefits during the quarter and nine months ended June 24, 2016 related to these charges. The Company did not incur merger costs during the nine months ended June 26, 2015.
Merger costs were classified in continuing operations within the Company's Consolidated Statement of Operations as follows ($ in millions):
 
For the Quarter Ended
 
For the Nine Months Ended
 
June 24, 2016
 
June 24, 2016
Selling, general and administrative
$
12

 
$
12

Merger costs
7

 
33

Total
$
19

 
$
45

3.    Divestitures
The Company has continued to assess the strategic fit of its various businesses and has pursued the divestiture of certain businesses which do not align with its long-term strategy.
Fiscal 2016
During the third quarter of fiscal 2016, the Company concluded that a business in the ROW Integrated Solutions & Services segment which it intends to sell met the criteria to be classified as held for sale. The assets and liabilities of this business have been presented separately as held for sale within the Consolidated Balance Sheets for all periods presented. A pre-tax loss of approximately $59 million for the write-down to fair value, less cost to sell, was recorded in Selling, general and administrative expenses within the Company's Consolidated Statements of Operations for the quarter and nine months ended June 24, 2016. This business has not been presented in discontinued operations within the Consolidated Statements of Operations, as the criteria to be presented as a discontinued operation were not satisfied.
During the second quarter of fiscal 2016, the Company completed the sale of its Australian fire protection business, included within its ROW Integrated Solutions & Services segment. The assets and liabilities of this business have been presented separately as held for sale within the Consolidated Balance Sheets as of September 25, 2015. The Company recorded

11

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


a pre-tax loss of $74 million related to the sale for the nine months ended June 24, 2016. This loss included a $57 million write-down to fair value, less costs to sell, which was recorded during the first quarter of fiscal 2016. Also included in the loss for the nine month period was the write-off of a cumulative translation loss of $30 million. This business has not been presented in discontinued operations within the Consolidated Statements of Operations, as the criteria to be presented as a discontinued operation were not satisfied.
During the second quarter of fiscal 2016, the Company completed the sale of a business within its Global Products segment. The assets and liabilities have not been presented separately as held for sale within the Consolidated Balance Sheets as the amounts were not material to the presentation of all periods. A pre-tax loss of approximately $17 million was recorded in Selling, general and administrative expenses within the Company’s Consolidated Statements of Operations during the fourth quarter of fiscal 2015 which represented the Company's best estimate to write-down the business to fair value, less costs to sell. Upon completing the sale, the Company recorded an immaterial gain. This business has not been presented in discontinued operations as the amounts were not material to the Consolidated Financial Statements.
In addition, during the second quarter of fiscal 2016, the Company completed the sale of another business within the ROW Integrated Solutions & Services segment and realized a loss that was not material. This business is accounted for as held for sale within the Consolidated Balance Sheets as of September 25, 2015, and its results of operations have been presented as discontinued operations within the Consolidated Statements of Operations for the nine months ended June 24, 2016 and the quarter and nine months ended June 26, 2015.
During the first quarter of fiscal 2016, the Company recorded a pre-tax gain of $17 million resulting from the transfer to Pentair Ltd. (formerly known as Tyco Flow Control International Ltd.) of Tyco's equity interest in a joint venture related to the Company's former Flow Control business as repayment of a loan established at the time of the 2012 Separation. This gain was recorded in Income (loss) from discontinued operations, net of income taxes, within the Consolidated Statements of Operations for the quarter ended December 25, 2015.
Fiscal 2015
During the third quarter of fiscal 2015, the Company completed the sale of several businesses in the ROW Integrated Solutions & Services segment, and recorded a loss on sale of $29 million and $28 million in (Loss) income from discontinued operations, net of taxes within the Consolidated Statements of Operations for the quarter and nine months ended June 26, 2015, respectively. The results of operations of these businesses have been presented within discontinued operations on the Consolidated Statements of Operations during the quarter and nine months ended June 26, 2015.
In addition, during the third quarter of fiscal 2015, the Company completed the sale of another business in the ROW Integrated Solutions & Services segment. The Company recorded $22 million in Selling, general and administrative expenses within the Consolidated Statements of Operations for an anticipated loss on disposal during the quarter ended March 27, 2015. This business did not meet the criteria to be classified as a discontinued operation, and thus its results of operations were included in continuing operations in the Consolidated Financial Statements.
Divestiture Charges, net    
During the third quarter of fiscal 2016, the Company recorded a net loss of $38 million in Selling, general and administrative expenses within the Company's Consolidated Statements of Operations, primarily related to the loss on anticipated sale of a business in the ROW Integrated Solutions & Services segment, as described above, partially offset by a $14 million gain related to the reversal of an indemnification reserve for a previously divested business. The Company recorded a net gain of $4 million during the third quarter of fiscal 2015, related to a business in the ROW Integrated Solutions & Services segment in Selling, general and administrative expenses within the Company's Consolidated Statements of Operations.
During the nine months ended June 24, 2016, the Company recorded a net loss of $107 million in Selling, general and administrative expenses within the Company's Consolidated Statements of Operations, primarily due to the third quarter of fiscal 2016 items as described above, in addition to the loss on sale of its Australian fire protection business. During the nine months ended June 26, 2015, the Company recorded a net loss of $19 million in Selling, general and administrative expenses within the Company's Consolidated Statements of Operations, related to several businesses in the ROW Integrated Solutions & Services segment.

12

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 Nine Months Ended
 
June 24, 2016
 
June 26, 2015
 
June 24, 2016
 
June 26, 2015
Net revenue
$

 
$
5

 
$
1

 
$
15

Pre-tax loss from discontinued operations

 
(3
)
 
(2
)
 
(12
)
Pre-tax (loss) gain on sale of discontinued operations
(1
)
 
(29
)
 
16

 
(28
)
Income tax expense (1)
(1
)
 

 
(11
)
 
(10
)
(Loss) income from discontinued operations, net of income taxes
$
(2
)
 
$
(32
)
 
$
3

 
$
(50
)
(1) Income tax expense for the nine months ended June 24, 2016 includes $14 million related to the Company’s settlement of income tax matters pertaining to its divested ADT Korea business. These matters are unrelated to the liability established of $212 million during fiscal 2014 which relates to the indemnification for certain tax related matters in connection with the sale. The Company continues to maintain such liability until the matter is resolved.
Balance sheet information for the assets and liabilities of businesses classified as held for sale as of June 24, 2016 and September 25, 2015 was as follows ($ in millions):
 
As of
 
As of
 
June 24, 2016
 
September 25, 2015
Accounts receivable, net
$
9

 
$
54

Inventories
6

 
8

Prepaid expenses and other current assets
6

 
26

Deferred income taxes

 
1

Property, plant and equipment, net
13

 
24

Goodwill

 
34

Intangible assets, net
33

 
57

Other assets
4

 
4

  Total assets
$
71

 
$
208

Accounts payable
12

 
22

Accrued and other current liabilities
19

 
43

Deferred revenue
3

 
5

Other liabilities

 
10

  Total liabilities
$
34

 
$
80

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 within 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.


13

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


4.    Restructuring and Asset Impairment Charges, Net
During fiscal 2016, 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 between $35 million and $50 million in fiscal 2016, which does not include repositioning charges, as described below.
The Company recorded restructuring and asset impairment charges (income) by action as follows ($ in millions):
 
For the Quarters Ended
 
For the Nine Months Ended
 
June 24, 2016
 
June 26, 2015
 
June 24, 2016
 
June 26, 2015
2016 actions
$
6

 
$

 
$
21

 
$

2015 actions
(1
)
 
39

 

 
97

2014 and prior actions

 
(1
)
 
1

 
11

Total restructuring and asset impairment charges, net
$
5

 
$
38

 
$
22

 
$
108

Charges reflected in SG&A
$

 
$

 
$
1

 
$

Charges reflected in restructuring and asset impairments, net
5

 
38

 
21

 
108

2016 Actions
Restructuring and asset impairment charges, net, during the quarter and nine months ended June 24, 2016 related to the 2016 actions are as follows ($ in millions):
 
For the Quarter Ended June 24, 2016
 
Employee
Severance and
Benefits
NA Integrated Solutions & Services
$
4

ROW Integrated Solutions & Services
1

Global Products
1

Total
$
6

 
For the Nine Months Ended June 24, 2016
 
Employee
Severance and
Benefits
 
Facility Exit and Other Charges
 
Charges Reflected in SG&A
 
Total
NA Integrated Solutions & Services
$
6

 
$

 
$

 
$
6

ROW Integrated Solutions & Services
4

 

 

 
4

Global Products
5

 
1

 
1

 
7

Corporate and Other
4

 

 

 
4

Total
$
19

 
$
1

 
$
1

 
$
21

The rollforward of the reserves from September 25, 2015 to June 24, 2016 is as follows ($ in millions):
Balance as of September 25, 2015
$

Charges
22

Reversals
(2
)
Utilization
(13
)
Balance as of June 24, 2016
$
7


14

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


2015 Actions
Restructuring and asset impairment charges, net, during the quarters ended June 24, 2016 and June 26, 2015 and nine months ended June 26, 2015 related to the 2015 actions are as follows ($ in millions):
 
For the Quarter Ended
June 24, 2016
 
Employee
Severance and
Benefits
NA Integrated Solutions & Services
$
(1
)
Total
$
(1
)
 
For the Quarter Ended
June 26, 2015
 
Employee
Severance and
Benefits
 
Facility Exit and Other Charges
 
Total
NA Integrated Solutions & Services
$
1

 
$

 
$
1

ROW Integrated Solutions & Services
34

 
1

 
35

Global Products
1

 

 
1

Corporate and Other
2

 

 
2

Total
$
38

 
$
1

 
$
39


 
 
For the Nine Months Ended June 26, 2015
 
 
Employee
Severance and
Benefits
 
Facility Exit and Other Charges
 
Total
NA Integrated Solutions & Services
 
$
27

 
$

 
$
27

ROW Integrated Solutions & Services
 
48

 
6

 
54

Global Products
 
4

 

 
4

Corporate and Other
 
12

 

 
12

Total
 
$
91

 
$
6

 
$
97

    
Restructuring and asset impairment charges (income), net, incurred cumulative to date from initiation of the 2015 actions are as follows ($ in millions):
 
Employee
Severance and
Benefits
 
Facility Exit
and Other
Charges
 
Charges (Income) Reflected in SG&A
 
Total
NA Integrated Solutions & Services
$
41

 
$
3

 
$
1

 
$
45

ROW Integrated Solutions & Services
81

 
9

 
1

 
91

Global Products
21

 
1

 
(1
)
 
21

Corporate and Other
20

 
1

 

 
21

Total
$
163

 
$
14

 
$
1

 
$
178


15

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


The rollforward of the reserves from September 25, 2015 to June 24, 2016 is as follows ($ in millions):
Balance as of September 25, 2015
$
117

Charges
8

Reversals
(8
)
Utilization
(42
)
Balance as of June 24, 2016
$
75

Restructuring reserves for businesses that are included in Liabilities held for sale within the Consolidated Balance Sheets are excluded from the table above. See Note 3.
2014 and prior actions
The Company continues to maintain restructuring reserves related to actions initiated prior to fiscal 2015. The total amount of these reserves was $27 million and $38 million as of June 24, 2016 and September 25, 2015, respectively. The Company incurred nil of net restructuring charges and $1 million of net restructuring reversals for the quarters ended June 24, 2016 and June 26, 2015, respectively, related to 2014 and prior actions. The Company utilized $2 million and $9 million of restructuring reserves during the quarters ended June 24, 2016 and June 26, 2015, respectively. The Company incurred $1 million and $11 million of net restructuring charges and utilized $12 million and $38 million for the nine months ended June 24, 2016 and June 26, 2015, respectively, related to 2014 and prior actions. The aggregate remaining reserves relate to employee severance and benefits as well as facility exit costs for long-term non-cancelable lease obligations primarily within the Company's NA Integrated Solutions & Services and ROW Integrated Solutions & Services segments.
Total Restructuring Reserves
As of June 24, 2016 and September 25, 2015, restructuring reserves related to all actions were included within the Company's Consolidated Balance Sheets as follows ($ in millions):
 
As of
 
June 24,
2016
 
September 25, 2015
Accrued and other current liabilities
$
96

 
$
140

Other liabilities
13

 
15

Total
$
109

 
$
155

Restructuring reserves for businesses that are included in Liabilities held for sale within the Consolidated Balance Sheets are excluded from the table above. See Note 3.
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 June 24, 2016 and June 26, 2015, the Company recorded net repositioning charges of $8 million and $27 million, respectively, and $19 million and $61 million for the nine months ended June 24, 2016 and June 26, 2015, respectively, primarily related to professional fees which have been reflected in Selling, general and administrative expenses within the Consolidated Statements of Operations.


16

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


5.    Acquisitions
During the quarter ended June 24, 2016, cash consideration for acquisitions included in continuing operations was $6 million related to an acquisition that is being integrated within the Company's Global Products segment.
During the nine months ended June 24, 2016, cash consideration for acquisitions included in continuing operations was $320 million. This included cash consideration of $176 million, which was comprised of $182 million of cash paid, net of cash acquired of $6 million and related to the acquisition of ShopperTrak, a leading global provider of retail consumer behavior insights and location-based analytics. ShopperTrak is being integrated into the NA Integrated Solutions & Services and ROW Integrated Solutions & Services segments. In addition, cash consideration for the nine month period also included $128 million, which was comprised of $166 million of cash paid, including $5 million to settle pre-existing matters and $6 million for prepaid agency commissions, net of cash acquired of $27 million, related to an additional investment in the Company's Tyco UAE joint venture with its local partner Suwaidi Engineering Group ("Suwaidi") in the United Arab Emirates ("UAE"). Tyco UAE is a leading provider of fire, security and integrated solutions and services in the UAE and also has operations in Qatar and Oman. Effective with the date of this transaction, the Company consolidated 100% of Tyco UAE, which is recorded in the Company's ROW Integrated Solutions & Services segment. The total enterprise fair value of the UAE joint venture was allocated as follows: $99 million of assets, $136 million of goodwill, $99 million of intangible assets and the assumption of $32 million of liabilities. The Company's proportionate share of the joint venture's net income was historically recorded in Selling, general and administrative expenses within the Consolidated Statements of Operations for periods prior to the acquisition date. As a result of this transaction, the Company recorded a net gain of $111 million which primarily relates to the Company's previously held 49% equity interest in the joint venture, which was previously accounted for under the equity method of accounting, inclusive of a charge for the settlement of pre-existing matters with the Company's former joint venture partner. The Company recorded the net gain in Selling, general and administrative expenses within the Consolidated Statements of Operations during the quarter ended December 25, 2015. The balance of the cash paid during the nine months ended June 24, 2016 of $16 million related to acquisitions within the Company's ROW Integrated Solutions & Services and Global Products segments which were not material.
The Company finalized the determination of fair value of certain assets and liabilities related to the ShopperTrak acquisition during the third quarter of fiscal 2016 with no material effect on the purchase price allocation. In addition, during the nine months ended June 24, 2016, the Company finalized the determination of fair value for certain assets and liabilities relating to the acquisitions closed during the first quarter of fiscal 2016 and fourth quarter of fiscal 2015, with no material adjustment to the preliminary purchase price allocations.
During the quarter ended June 26, 2015, the Company did not complete any acquisitions. During the nine months ended June 26, 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. The largest of these was 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 has been allocated as follows: $68 million of assets, $136 million of goodwill, $143 million of intangible assets and the assumption of $15 million of liabilities. IST has been integrated into the Global Products segment. The remaining 10 acquisitions during the nine months ended June 26, 2015 have been integrated into the ROW Integrated Solutions & Services and Global Products segments.
Acquisition and Integration Related Costs
Acquisition and integration related costs are expensed as incurred. During the quarters ended June 24, 2016 and June 26, 2015, the Company incurred acquisition and integration related costs of $5 million and $2 million, respectively. During the nine months ended June 24, 2016 and June 26, 2015, the Company incurred acquisition and integration related costs of $9 million and $4 million, respectively. Such costs are recorded in Selling, general and administrative expenses within the Company's Consolidated Statements of Operations.


17

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 June 24, 2016.
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
2008-2015
Canada
2007-2015
Germany
2006-2015
Ireland
2011-2015
Switzerland
2006-2015
United Kingdom
2013-2015
United States
2008-2015
Based on the current status of its income tax audits, the Company believes the unrecognized tax benefits that may be resolved in the next twelve months are not expected to be material.
At each balance sheet date, the Company evaluates whether it is more likely than not that Tyco's deferred tax assets will be realized and if sufficient future taxable income will be available by assessing current period and projected operating results and other pertinent data. As of June 24, 2016, Tyco recorded deferred tax assets of approximately $182 million, which is comprised of $2.3 billion gross deferred tax assets net of $2.1 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 plc and ADT Corporation after the 2012 Separation and (ii) Tyco, Covidien plc (subsequently acquired by Medtronic plc) and TE Connectivity Ltd. 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 within 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, Covidien's and TE Connectivity's income tax liabilities, which result in cash payments, based on a sharing formula for periods prior to and including June 29, 2007. More specifically, Tyco, Covidien and TE Connectivity share 27%, 42% and 31%, respectively, of shared income tax liabilities that arise from adjustments made by tax authorities to Tyco's, Covidien's and TE Connectivity's U.S. and certain non-U.S. income tax returns. The costs and expenses associated with the management of these shared tax liabilities are generally shared equally among the parties. In connection with the execution of the 2007 Tax Sharing Agreement, Tyco established a net receivable from Covidien and TE Connectivity representing the amount Tyco expected to receive for pre-2007 Separation uncertain tax positions, including amounts owed to the Internal Revenue Service ("IRS"). Tyco also established liabilities representing the fair market value of its share of Covidien's and TE Connectivity's estimated obligations, primarily to the IRS, for their pre-2007 Separation taxes covered by the 2007 Tax Sharing Agreement.

18

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 Covidien and TE Connectivity under the 2007 Tax Sharing Agreement as the shared income tax liabilities are settled. Settlement is expected to occur as the tax audit and legal processes are completed for the impacted years and cash payments are made. Due to the nature of the unresolved adjustments described in the next paragraph, the maximum amount of future payments under the 2012 and 2007 Tax Sharing Agreements is not known. Such cash payments, when they occur, will reduce the guarantor liability as 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 on June 20, 2013, it had received Notices of Deficiency from the IRS asserting that several of Tyco's former U.S. subsidiaries owed 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 had been asserted. These amounts excluded interest and did not reflect the roll-forward impact on subsequent audit periods.
As previously reported, the Company, as Audit Managing Party under each Tax Sharing Agreement dated September 25, 2007 (among the Company, TE Connectivity Ltd. and Covidien plc (which on January 26, 2015 was acquired by and now operates as a subsidiary of Medtronic plc) and dated September 28, 2012 (among the Company, The ADT Corporation and Pentair Ltd. (along with TE Connectivity and Covidien, the "Parties")), entered into Stipulations of Settled Issues with the IRS intended to resolve all Federal tax disputes related to the intercompany debt issues for the Company’s 1997 - 2000 audit cycle before the U.S. Tax Court. The Stipulations of Settled Issues were contingent upon the IRS Appeals Division applying the same settlement terms to all intercompany debt issues on appeal for subsequent audit cycles (2001 - 2007). On May 17, 2016 the IRS Office of Appeals issued fully-executed Forms 870-AD that effectively settled the matters on appeal on the same terms as those set forth in the Stipulations of Settled Issues, and on May 31, 2016, the U.S. Tax Court entered decisions consistent with the Stipulations of Settled Issues. As a result, all aspects of this controversy that were before the U.S. Tax Court and Appeals Division of the IRS have been finally resolved for audit cycles 1997 - 2007. The Company paid $120 million to TE Connectivity Ltd. and $2 million to Covidien during the second quarter of fiscal 2016 representing its share of the total amount payable to the IRS in connection with this matter.
Additionally, during the third quarter of fiscal 2016, the Company also paid $12 million to Covidien and $4 million to TE Connectivity with respect to other matters sharable pursuant to the 2007 Tax Sharing Agreement.
As a result of the final settlement, the Company assessed its remaining obligations under its tax sharing agreements. Based on the assessment performed, the Company reversed a portion of its shared tax obligation liabilities related to the 2007 and 2012 Tax Sharing Agreements, and recognized a gain of $54 million in Other income (expense), net within the Consolidated Statements of Operations for both the quarter and nine months ended June 24, 2016. The Company believes the remaining liabilities that it has recorded are sufficient to cover its future obligations under the Tax Sharing Agreements.
In addition to dealing with tax liabilities for periods prior to the respective Separations, the 2012 and 2007 Tax Sharing Agreements contain sharing provisions to address the contingencies that the 2012 or 2007 Separations, or internal transactions related thereto, may be deemed taxable by U.S. or non U.S. taxing authorities. In the event the 2012 Separation is determined to be taxable and such determination was the result of actions taken after the 2012 Separations by Tyco, ADT or Pentair, the party responsible for such failure would be responsible for all taxes imposed on each company as a result thereof. If such determination is not the result of actions taken by Tyco, ADT or Pentair after the 2012 Separation, then Tyco, ADT and Pentair would be responsible for any taxes imposed on any of the companies as a result of such determination in the same manner and in the same proportions as described above. Similar provisions exist in the 2007 Tax Sharing Agreement. If either of the 2007 or 2012 Separation, or internal transactions taken in anticipation thereof, were deemed taxable, the associated liability could be significant. Tyco is responsible for all of its own taxes that are not shared pursuant to the 2012 and 2007 Tax Sharing Agreements' sharing formulas. In addition, Pentair and ADT, and Covidien and TE Connectivity are responsible for their tax liabilities that are not subject to the 2012 or 2007 Tax Sharing Agreements' sharing formula.

19

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


Each of the 2012 and 2007 Tax Sharing Agreements provides that, if any party to such agreement were to default in its obligation to another party to pay its share of the distribution taxes that arise as a result of no party's fault, each non-defaulting party to the agreement would be required to pay, equally with any other non-defaulting party to the agreement, the amounts in default. In addition, if another party to the 2012 or 2007 Tax Sharing Agreements that is responsible for all or a portion of an income tax liability were to default in its payment of such liability to a taxing authority, Tyco could be liable under applicable tax law for such liabilities and required to make additional tax payments. Accordingly, under certain circumstances, Tyco may be obligated to pay amounts in excess of its agreed-upon share of its tax liabilities under either of the 2012 or 2007 Tax Sharing Agreements.
The receivables and liabilities related to the 2012 and 2007 Tax Sharing Agreements as of June 24, 2016 and September 25, 2015, are as follows ($ in millions):
 
2012 Tax Sharing Agreement
 
2007 Tax Sharing Agreement
 
As of
 
As of
 
June 24, 2016
 
September 25, 2015
 
June 24, 2016
 
September 25, 2015
Tax sharing agreement related receivables:
 
 
 
 
 
 
 
Other assets
$

 
$

 
$

 
$
19

 

 

 

 
19

Tax sharing agreement related liabilities:
 
 
 
 
 
 
 
Accrued and other current liabilities

 

 
(30
)
 
(15
)
Other liabilities
(16
)
 
(46
)
 

 
(194
)
 
(16
)
 
(46
)
 
(30
)
 
(209
)
Net liability
$
(16
)
 
$
(46
)
 
$
(30
)
 
$
(190
)
In addition to the amounts above, pursuant to the terms of the 2012 Separation and Distribution Agreement, Tyco, ADT and Pentair are each responsible for issuing their own shares upon employee exercise of a stock option award or vesting of a restricted unit award. However, the 2012 Tax Sharing Agreement provides that any allowable compensation tax deduction for such awards is to be claimed by the employee's current employer. The 2012 Tax Sharing Agreement requires the employer claiming a tax deduction for shares issued by the other companies to pay a percentage of the allowable tax deduction to the company issuing the equity. During the quarter ended June 24, 2016, Tyco made a $1 million net payment to ADT in connection with deductions claimed for ADT shares issued to Company employees. During the nine months ended June 24, 2016, Tyco made a $15 million net payment to Pentair and a $2 million net payment to ADT in connection with deductions claimed for Pentair and ADT shares issued to Company employees. Payments made to Pentair and ADT for the quarter and nine months ended June 26, 2015 were not material.
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.


20

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
June 24, 2016
 
For the Quarter Ended
June 26, 2015
 
Income
 
Shares
 
Per Share
Amount
 
Income
 
Shares
 
Per Share
Amount
Basic earnings per share attributable to Tyco ordinary shareholders:
 
 
 
 
 
 
 
 
 
 
 
Income from continuing operations
$
241

 
426

 
$
0.57

 
$
188

 
421

 
$
0.45

Share options and restricted share awards


 
3

 
 
 

 
6

 
 
Diluted earnings per share attributable to Tyco ordinary shareholders:
 
 
 
 
 
 
 
 
 
 
 
Income from continuing operations attributable to Tyco ordinary shareholders, giving effect to dilutive adjustments
$
241

 
429

 
$
0.56

 
$
188

 
427

 
$
0.44

 
For the Nine Months Ended
June 24, 2016
 
For the Nine Months Ended
June 26, 2015
 
Income
 
Shares
 
Per Share
Amount
 
Income
 
Shares
 
Per Share
Amount
Basic earnings per share attributable to Tyco ordinary shareholders:
 
 
 
 
 
 
 
 
 
 
 
Income from continuing operations
$
458

 
425

 
$
1.08

 
$
535

 
421

 
$
1.27

Share options and restricted share awards


 
3

 
 
 

 
6

 
 
Diluted earnings per share attributable to Tyco ordinary shareholders:
 
 
 
 
 
 
 
 
 
 
 
Income from continuing operations attributable to Tyco ordinary shareholders, giving effect to dilutive adjustments
$
458

 
428

 
$
1.07

 
$
535

 
427

 
$
1.25

The computation of diluted earnings per share for the quarter and nine months ended June 24, 2016 excludes the effect of the potential exercise of share options to purchase approximately 6 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.
The computation of diluted earnings per share for the quarter and nine months ended June 26, 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 and 2 million shares, respectively, for the quarter and nine months ended June 26, 2015 because the effect would be anti-dilutive.

21

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


8.    Goodwill and Intangible Assets
Goodwill    
The changes in the carrying amount of goodwill by segment are as follows ($ in millions):
 
NA Integrated Solutions &
Services
 
ROW
Integrated Solutions &
Services
 
Global
Products
 
Total
 
 
 
 
 
 
 
 
Gross goodwill
$
2,102

 
$
1,938

 
$
1,809

 
$
5,849

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

 
870

 
1,242

 
4,088

2015 activity:


 


 


 


Acquisitions / purchase accounting adjustments
23

 
50

 
274

 
347

Currency translation
(29
)
 
(167
)
 
(36
)
 
(232
)


 

 

 

Gross goodwill
$
2,096

 
$
1,821

 
$
2,047

 
$
5,964

Accumulated impairment
(126
)
 
(1,068
)
 
(567
)
 
(1,761
)
Carrying amount of goodwill as of September 25, 2015
1,970

 
753

 
1,480

 
4,203

2016 activity:


 


 


 


Acquisitions / purchase accounting adjustments
73

 
161

 
5

 
239

Currency translation
5

 
(23
)
 
(6
)
 
(24
)


 

 

 

Gross goodwill
$
2,174

 
$
1,959

 
$
2,046

 
$
6,179

Accumulated impairment
(126
)
 
(1,068
)
 
(567
)
 
(1,761
)
Carrying amount of goodwill as of June 24, 2016
$
2,048

 
$
891

 
$
1,479

 
$
4,418

Intangible Assets

The following table sets forth the gross carrying amount and accumulated amortization of the Company's intangible assets as of June 24, 2016 and September 25, 2015 ($ in millions):
 
As of
 
June 24, 2016
 
September 25, 2015
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Gross
Carrying
Amount
 
Accumulated
Amortization
Amortizable:
 
 
 
 
 
 
 
Contracts and related customer relationships
$
1,266

 
$
960

 
$
1,167

 
$
918

Intellectual property
879

 
528

 
760

 
496

Other
8

 
5

 
7

 
4

Total
$
2,153

 
$
1,493

 
$
1,934

 
$
1,418

Non-Amortizable:
 
 
 
 
 
 
 
Intellectual property
$
211

 
 

 
$
210

 
 
Franchise rights
76

 
 

 
76

 
 
In-process research and development
19

 
 
 
20

 
 
Total
$
306

 
 

 
$
306

 
 

22

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


Intangible asset amortization expense for the quarters ended June 24, 2016 and June 26, 2015 was $25 million and $24 million, respectively. Intangible asset amortization expense for the nine months ended June 24, 2016 and June 26, 2015 was $73 million and $65 million, respectively.
The estimated aggregate amortization expense on intangible assets is expected to be approximately $26 million for the remainder of 2016, $94 million for 2017, $88 million for 2018, $83 million for 2019, and $369 million for 2020 and thereafter.
9.    Debt
The carrying value of the Company's debt as of June 24, 2016 and September 25, 2015 is as follows ($ in millions):
 
As of
 
June 24, 2016
 
September 25, 2015
Commercial paper(1)
$
341

 
$

3.375% public notes due 2015(2)

 
258

3.75% public notes due 2018
67

 
67

7.0% public notes due 2019(2)

 
245

6.875% public notes due 2021(2)

 
465

4.625% public notes due 2023
42

 
42

1.375% Euro-denominated public notes due 2025
564

 
558

3.9% public notes due 2026
745

 
745

5.125% public notes due 2045
746

 
746

Other (2)
1

 
20

Total debt
2,506

 
3,146

Less current portion
341

 
987

Long-term debt
$
2,165

 
$
2,159

_______________________________________________________________________________
(1) The current portion of debt as of June 24, 2016 is comprised of $341 million of commercial paper.
(2) The current portion of debt as of September 25, 2015 is comprised of $258 million notes due 2015, $245 million notes due 2019, $465 million notes due 2021 and $19 million of Other debt.
Fair Value
The carrying amount of Tyco's debt subject to the fair value disclosure requirements as of June 24, 2016 and September 25, 2015 was $2,505 million and $3,126 million, respectively. The Company has determined the fair value of such debt to be $2,660 million and $3,291 million as of June 24, 2016 and September 25, 2015, 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 June 24, 2016 and September 25, 2015, the fair value of the Company's debt which was actively traded was $2,319 million and $3,291 million, respectively. As of June 24, 2016 and September 25, 2015, the Company's debt that was subject to the fair value disclosure requirements and was actively traded is classified as Level 1 in the fair value hierarchy. Additionally, the Company believes the carrying amount of its commercial paper of $341 million as of June 24, 2016 approximates fair value based on the short-term nature of such debt.
Fiscal 2016 Debt Repayment
On September 14, 2015, the Company and the Company's wholly-owned subsidiary, Tyco International Finance S.A. ("TIFSA") announced the redemption of all of the outstanding $242 million aggregate principal amount of 7.0% notes due 2019 and $462 million aggregate principal amount of 6.875% notes due 2021. On October 14, 2015, TIFSA paid cash of $876 million to complete the redemption, resulting in a loss on extinguishment of $168 million which was recorded in Other expense, net within the Consolidated Statements of Operations during the first quarter of fiscal 2016. The charge is comprised of the make-whole premium of $172 million and the write-off of unamortized debt issuance costs of $1 million, partially offset by the write-off of the unamortized premium of $5 million.

23

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


On October 15, 2015, the Company repaid $258 million aggregate principal amount of 3.375% notes which matured on such date.
Financing in Connection with Proposed Merger with Johnson Controls
On March 10, 2016, Tyco International Holding S.à r.l. ("TSARL"), an indirect wholly owned subsidiary of Tyco, entered into a Term Loan Credit Agreement with a syndicate of lenders providing for a senior unsecured term loan facility in the amount of $4 billion to finance the cash consideration for, and fees, expenses and costs incurred in connection with the Merger. Any borrowing under the Term Loan Credit Agreement is conditioned upon the closing of the Merger and will be made in a single borrowing on the closing date of the Merger and will have a maturity of 3.5 years and be denominated in U.S. dollars. See Note 1.
In addition, on March 10, 2016, TSARL entered into a Multi-Year Senior Unsecured Credit Agreement providing for revolving credit commitments in the aggregate amount of $1 billion (the “Revolving Credit Agreement”). TSARL's ability to borrow under the Revolving Credit Agreement is subject to the satisfaction or waiver of customary conditions, including the consummation of the Merger, as well as the termination of the commitments of the lenders, and payments of any amounts outstanding, under TIFSA's existing $1.5 billion Amended and Restated Five-Year Senior Unsecured Credit Agreement dated as of August 7, 2015 (the "2015 Credit Agreement"). The Revolving Credit Agreement has a scheduled maturity date of August 7, 2020 and includes an option for TSARL to request an increase in the aggregate principal amount of the commitments, up to an additional $250 million.
Credit Facilities
On August 7, 2015, TIFSA entered into the 2015 Credit Agreement, which amended and restated TIFSA's existing $1 billion Five-Year Senior Unsecured Credit Agreement, dated June 22, 2012 (the “2012 Credit Agreement”). The 2015 Credit Agreement will be terminated upon completion of the Merger and replaced with the Revolving Credit Agreement discussed above.
As of June 24, 2016, the Company's total committed revolving credit facilities totaled $1.5 billion. The Company's revolving credit facilities may be used for working capital, capital expenditures and general corporate purposes. As of June 24, 2016 and September 25, 2015, there were no amounts drawn under the Company's revolving credit facilities. Interest under the revolving credit facilities is variable and is calculated by reference to LIBOR or an alternate base rate.
TIFSA's revolving credit facilities contain customary terms and conditions, and financial covenants that limit the ratio of the Company's debt to earnings before interest, taxes, depreciation, and amortization and that limit our ability to incur subsidiary debt or grant liens on its property. The indentures governing the Company's public notes contain customary covenants including limits on negative pledges, subsidiary debt and sale/leaseback transactions. None of these covenants are considered restrictive to the Company's business.
Commercial Paper
From time to time, 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 $1.5 billion as of June 24, 2016. As of June 24, 2016 and September 25, 2015, TIFSA had $341 million and nil of commercial paper outstanding, respectively.
10.    Financial Instruments
The Company's financial instruments consist primarily of cash and cash equivalents, accounts receivable, investments, accounts payable, debt and derivative financial instruments. The fair value of cash, accounts receivable, and accounts payable approximated book value as of June 24, 2016 and September 25, 2015. The fair value of derivative financial instruments was not material to any of the periods presented. See below for the fair value of cash equivalents and investments and Note 9 for the fair value of debt.

24

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


Derivative Instruments
In the normal course of business, Tyco is exposed to market risk arising from changes in currency exchange rates, interest rates and commodity prices. The Company may use derivative financial instruments to manage exposures to foreign currency, interest rate and commodity risks. The Company's objective for utilizing derivative financial instruments is to manage these risks using the most effective methods to eliminate or reduce the impacts of these exposures. The Company does not use derivative financial instruments for trading or speculative purposes. As of and during the nine months ended June 24, 2016, 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 ended March 27, 2015, the Company designated its 2025 Euro notes 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 both the quarter and nine months ended June 24, 2016, the change in the carrying value due to remeasurement of the 2025 Euro notes resulted in a net loss of $6 million reported in Accumulated other comprehensive loss within the Consolidated Statement of Shareholders' Equity. During the quarter and nine months ended June 26, 2015, the change in the carrying value due to remeasurement of the 2025 Euro notes resulted in a $12 million loss and an $8 million gain, respectively, reported in Accumulated other comprehensive loss on the Consolidated Balance Sheet. This hedge did not result in any hedge ineffectiveness for the quarters and nine months ended June 24, 2016 and June 26, 2015.
Foreign Currency Exposures
As of June 24, 2016 and September 25, 2015, the total gross notional amount of the Company's foreign exchange contracts was $614 million and $365 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 June 24, 2016 and September 25, 2015 or Consolidated Statements of Operations and Consolidated Statements of Cash Flows for the quarters and nine months ended June 24, 2016 and June 26, 2015.
Counterparty Credit Risk
The use of derivative financial instruments exposes the Company to counterparty credit risk. Tyco has established policies and procedures to limit its exposure to 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. The Company does not anticipate any non-performance by any of its counterparties, and the concentration of risk with financial institutions does not present significant credit risk to the Company. The maximum amount of loss that the Company would incur as of June 24, 2016 without giving consideration to the effects of legally enforceable master netting agreements was not material.
Cash Equivalents and Investments
The fair value of cash equivalents approximates carrying value and is included in Level 1.
Investments may 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.

25

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


Assets Measured at Fair Value on a Recurring Basis
The following table presents the Company's hierarchy for its assets measured at fair value on a recurring basis as of June 24, 2016 and September 25, 2015 ($ in millions):
 
 
 
 
 
 
 
Consolidated Balance Sheet
Classification
 
As of June 24, 2016
 
Cash and Cash Equivalents
 
Prepaid Expenses and
Other Current
Assets
 
Other Assets
Investment Assets:
Level 1
 
Level 2
 
Total
 
 
 
Cash equivalents
$
81

 
$

 
$
81

 
$
81

 
$

 
$

Available-for-sale securities:


 


 


 
 
 


 
 
  Exchange traded funds (fixed income) (1)
176

 

 
176

 

 
15

 
161

  Exchange traded funds (equity) (1)
81

 

 
81

 

 

 
81

Trading securities:
 
 
 
 
 
 
 
 
 
 
 
  Exchange traded funds (equity)
55

 

 
55

 

 
55

 

 
$
393

 
$

 
$
393

 
$
81

 
$
70

 
$
242

 
 
 
 
 
 
 
Consolidated Balance Sheet
Classification
 
As of September 25, 2015
 
Cash and Cash Equivalents
 
Prepaid Expenses and
Other Current
Assets
 
Other Assets
Investment Assets:
Level 1
 
Level 2
 
Total
 
 
 
Cash equivalents
$
909

 
$

 
$
909

 
$
909

 
$

 
$

Available-for-sale securities:
 
 
 
 
 
 
 
 
 
 
 
  Exchange traded funds (fixed income) (1)
186

 

 
186

 

 
15

 
171

  Exchange traded funds (equity) (1)
77

 

 
77

 

 

 
77

Trading securities:
 
 
 
 
 
 
 
 
 
 
 
  Exchange traded funds (equity)
59

 

 
59

 

 
59

 

 
$
1,231

 
$

 
$
1,231

 
$
909

 
$
74

 
$
248

(1) Classified as restricted investments. See Note 11.
During the quarters ended June 24, 2016 and June 26, 2015, the Company did not have any significant transfers between levels within the fair value hierarchy.
The Company recorded unrealized gains related to available-for-sale securities of $4 million and unrealized losses of $6 million for the quarters ended June 24, 2016 and June 26, 2015, respectively, and unrealized gains of $9 million and unrealized losses of $6 million for the nine months ended June 24, 2016 and June 26, 2015, respectively, within Accumulated other comprehensive loss.
Unrealized gains related to trading securities were nil and $1 million for the quarters ended June 24, 2016 and June 26, 2015, respectively. Unrealized gains were $2 million and $5 million for the nine months ended June 24, 2016 and June 26, 2015, respectively, which are recorded within Other income (expense), net within the Consolidated Statements of Operations.
Other
The Company had $1.3 billion and $1.4 billion of intercompany loans designated as permanent in nature as of June 24, 2016 and September 25, 2015, respectively. Additionally, for the quarters ended June 24, 2016 and June 26, 2015, the Company recorded cumulative translation losses of $9 million and gains of $40 million, respectively, through Accumulated other comprehensive loss related to these loans. For the nine months ended June 24, 2016 and June 26, 2015, the Company recorded cumulative translation losses of $68 million and $105 million, respectively, through Accumulated other comprehensive loss related to these loans.

26

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


11.   Commitments and Contingencies
Environmental Matters
Tyco is involved in various stages of investigation and cleanup related to environmental remediation matters at a number of sites. The ultimate cost of site cleanup is difficult to predict given the uncertainties regarding the extent of the required cleanup, the interpretation of applicable laws and regulations and alternative cleanup methods. As of June 24, 2016, Tyco concluded that it was probable that it would incur remedial costs in the range of approximately $20 million to $69 million. As of June 24, 2016, Tyco concluded that the best estimate within this range is approximately $31 million, of which $11 million is included in Accrued and other current liabilities and $20 million is included in Other liabilities within the Company's Consolidated Balance Sheet.
As previously disclosed, 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. As of June 24, 2016, the Company concluded that its remaining remediation and monitoring costs related to the Marinette facility were in the range of approximately $12 million to $44 million. The Company's best estimate within that range is approximately $21 million, of which $9 million is included in Accrued and other current liabilities and $12 million is included in Other liabilities within 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 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 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. Substantially all cases pending against affiliates of the Company have been filed against 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.
During the third quarter of fiscal 2014, the Company, through Grinnell, 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. 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, primarily related to Grinnell. 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 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 GAAP.
As of June 24, 2016, the Company has determined that there were approximately 3,000 claims pending against its subsidiaries, primarily Grinnell. This amount reflects the Company's current estimate of the number of viable claims made against Grinnell 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.
As of June 24, 2016, the Company's estimated asbestos related net liability recorded within the Company's Consolidated Balance Sheet is $18 million. The net liability within the Consolidated Balance Sheet is comprised of a liability for pending and future claims and related defense costs of $492 million, of which $22 million is recorded in Accrued and other current liabilities, and $470 million is recorded in Other liabilities. The Company also maintains separate cash, investment and other assets within the Consolidated Balance Sheet of $474 million, of which $31 million is recorded in Prepaid expenses and other

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TYCO INTERNATIONAL PLC