10-Q 1 a2214509z10-q.htm 10-Q

Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549



FORM 10-Q


ý

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended March 29, 2013

or

o

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

001-13836
(Commission File Number)



TYCO INTERNATIONAL LTD.
(Exact name of Registrant as specified in its charter)

Switzerland
(Jurisdiction of Incorporation)
  98-0390500
(I.R.S. Employer Identification Number)

Freier Platz 10, CH-8200 Schaffhausen, Switzerland
(Address of registrant's principal executive office)

41-52-633-02-44
(Registrant's telephone number)

        Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes ý    No o

        Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes ý    No o

        Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of "large accelerated filer," "accelerated filer," and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer ý   Accelerated filer o   Non-accelerated filer o
(Do not check if a smaller
reporting company)
  Smaller reporting company o

        Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes o    No ý

        The number of common shares outstanding as of April 16, 2013 was 464,000,443.

   


TYCO INTERNATIONAL LTD.
INDEX TO FORM 10-Q

 
   
  Page
Part I.   Financial Information    

Item 1.

 

Financial Statements

 

1

 

 

Consolidated Statements of Operations (Unaudited) for the quarters and six months ended March 29, 2013 and March 30, 2012

 

1

 

 

Consolidated Statements of Comprehensive Income (Loss) (Unaudited) for the quarters and six months ended March 29, 2013 and March 30, 2012

 

2

 

 

Consolidated Balance Sheets (Unaudited) as of March 29, 2013 and September 28, 2012

 

3

 

 

Consolidated Statements of Cash Flows (Unaudited) for the six months ended March 29, 2013 and March 30, 2012

 

4

 

 

Consolidated Statements of Shareholders' Equity (Unaudited) for the six months ended March 29, 2013 and March 30, 2012

 

5


 

Notes to Consolidated Financial Statements (Unaudited)

 

6

Item 2.

 

Management's Discussion and Analysis of Financial Condition and Results of Operations

 

52

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

69

Item 4.

 

Controls and Procedures

 

69

Part II.

 

Other Information

 

 

Item 1.

 

Legal Proceedings

 

71

Item 1A.

 

Risk Factors

 

76

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

76

Item 3.

 

Defaults Upon Senior Securities

 

77

Item 4.

 

Mine Safety Disclosures

 

77

Item 5.

 

Other Information

 

77

Item 6.

 

Exhibits

 

77

Signatures

 

78

Table of Contents


PART I. FINANCIAL INFORMATION

Item 1.    Financial Statements

        


TYCO INTERNATIONAL LTD.

CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

(in millions, except per share data)

 
  For the
Quarters Ended
  For the
Six Months Ended
 
 
  March 29,
2013
  March 30,
2012
  March 29,
2013
  March 30,
2012
 

Revenue from product sales

  $ 1,437   $ 1,407   $ 2,880   $ 2,776  

Service revenue

    1,171     1,135     2,328     2,244  
                   

Net revenue

    2,608     2,542     5,208     5,020  

Cost of product sales

    997     967     2,001     1,902  

Cost of services

    676     667     1,340     1,311  

Selling, general and administrative expenses

    790     660     1,472     1,337  

Separation costs (see Note 2)

        4     5     4  

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

    22     16     32     52  
                   

Operating income

    123     228     358     414  

Interest income

    4     4     8     9  

Interest expense

    (25 )   (59 )   (49 )   (117 )

Other (expense), net

    (20 )   (4 )   (29 )   (2 )
                   

Income from continuing operations before income taxes

    82     169     288     304  

Income tax expense

    (4 )   (33 )   (43 )   (60 )

Equity loss in earnings of unconsolidated subsidiaries

    (6 )   (2 )   (12 )   (12 )
                   

Income from continuing operations

    72     134     233     232  

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

    (2 )   189     2     413  
                   

Net income

    70     323     235     645  

Less: noncontrolling interest in subsidiaries net (loss) income

    (2 )            
                   

Net income attributable to Tyco common shareholders

  $ 72   $ 323   $ 235   $ 645  
                   

Amounts attributable to Tyco common shareholders:

                         

Income from continuing operations

  $ 74   $ 134   $ 233   $ 232  

(Loss) income from discontinued operations

    (2 )   189     2     413  
                   

Net income attributable to Tyco common shareholders

  $ 72   $ 323   $ 235   $ 645  
                   

Basic earnings per share attributable to Tyco common shareholders:

                         

Income from continuing operations

  $ 0.16   $ 0.29   $ 0.50   $ 0.50  

Income from discontinued operations

        0.41         0.89  
                   

Net income attributable to Tyco common shareholders

  $ 0.16   $ 0.70   $ 0.50   $ 1.39  
                   

Diluted earnings per share attributable to Tyco common shareholders:

                         

Income from continuing operations

  $ 0.16   $ 0.29   $ 0.49   $ 0.50  

Income from discontinued operations

        0.40         0.88  
                   

Net income attributable to Tyco common shareholders

  $ 0.16   $ 0.69   $ 0.49   $ 1.38  
                   

Weighted average number of shares outstanding:

                         

Basic

    466     463     466     463  

Diluted

    474     469     473     469  

   

See Notes to Unaudited Consolidated Financial Statements.

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TYCO INTERNATIONAL LTD.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED)

(in millions)

 
  For the
Quarters Ended
  For the
Six Months Ended
 
 
  March 29,
2013
  March 30,
2012
  March 29,
2013
  March 30,
2012
 

Net income

  $ 70   $ 323   $ 235   $ 645  
                   

Other comprehensive (loss) income, net of tax

                         

Foreign currency translation

    (102 )   198     (91 )   119  

Defined benefit and post retirement plans

    5     3     9     7  

Unrealized gain on marketable securities and derivative instruments

            1     2  
                   

Total other comprehensive (loss) income, net of tax

    (97 )   201     (81 )   128  
                   

Comprehensive (loss) income

    (27 )   524     154     773  

Less: comprehensive (loss) income attributable to noncontrolling interests

    (2 )            
                   

Comprehensive (loss) income attributable to Tyco common shareholders

  $ (25 ) $ 524   $ 154   $ 773  
                   

   

See Notes to Unaudited Consolidated Financial Statements.

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TYCO INTERNATIONAL LTD.

CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(in millions, except per share data)

 
  March 29,
2013
  September 28,
2012
 

Assets

             

Current Assets:

             

Cash and cash equivalents

  $ 430   $ 844  

Accounts receivable, less allowance for doubtful accounts of $75 and $62, respectively

    1,649     1,696  

Inventories

    654     634  

Prepaid expenses and other current assets

    930     884  

Deferred income taxes

    295     295  
           

Total current assets

    3,958     4,353  

Property, plant and equipment, net

    1,668     1,670  

Goodwill

    4,345     4,367  

Intangible assets, net

    735     771  

Other assets

    1,252     1,204  
           

Total Assets

  $ 11,958   $ 12,365  
           

Liabilities and Equity

             

Current Liabilities:

             

Loans payable and current maturities of long-term debt

  $ 11   $ 10  

Accounts payable

    783     897  

Accrued and other current liabilities

    1,757     1,788  

Deferred revenue

    418     402  
           

Total current liabilities

    2,969     3,097  

Long-term debt

    1,481     1,481  

Deferred revenue

    405     424  

Other liabilities

    2,361     2,341  
           

Total Liabilities

    7,216     7,343  
           

Commitments and Contingencies (see Note 11)

             

Redeemable noncontrolling interest

    12     12  
           

Tyco Shareholders' Equity:

             

Common shares, CHF 6.70 par value, 825,222,070 shares authorized, 486,363,050 shares issued as of March 29, 2013 and September 28, 2012

    2,792     2,792  

Common shares held in treasury, 23,549,025 and 24,174,397 shares, as of March 29, 2013 and September 28, 2012, respectively

    (967 )   (1,094 )

Contributed surplus

    1,202     1,763  

Accumulated earnings

    2,734     2,499  

Accumulated other comprehensive loss

    (1,047 )   (966 )
           

Total Tyco Shareholders' Equity

    4,714     4,994  

Nonredeemable noncontrolling interest

    16     16  
           

Total Equity

    4,730     5,010  
           

Total Liabilities, Redeemable Noncontrolling Interest and Equity

  $ 11,958   $ 12,365  
           

   

See Notes to Unaudited Consolidated Financial Statements.

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TYCO INTERNATIONAL LTD.

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(in millions)

 
  For the Six Months Ended  
 
  March 29,
2013
  March 30,
2012
 

Cash Flows From Operating Activities:

             

Net income attributable to Tyco common shareholders

  $ 235   $ 645  

Noncontrolling interest in subsidiaries net income

         

Income from discontinued operations, net of income taxes

    (2 )   (413 )
           

Income from continuing operations

    233     232  

Adjustments to reconcile net cash provided by operating activities:

             

Depreciation and amortization

    212     206  

Non-cash compensation expense

    31     42  

Deferred income taxes

    (45 )   (13 )

Provision for losses on accounts receivable and inventory

    38     24  

Loss on divestitures

    6     3  

Other non-cash items

    51     63  

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

             

Accounts receivable, net

    3     12  

Contracts in progress

    (13 )   (16 )

Inventories

    (33 )   (58 )

Prepaid expenses and other current assets

    31     (23 )

Accounts payable

    (106 )   (28 )

Accrued and other liabilities

    (192 )   (230 )

Deferred Revenue

    7     24  

Other

    (16 )   (32 )
           

Net cash provided by operating activities

    207     206  
           

Net cash provided by discontinued operating activities

    2     848  
           

Cash Flows From Investing Activities:

             

Capital expenditures

    (192 )   (185 )

Proceeds from disposal of assets

    4     2  

Acquisition of businesses, net of cash acquired

    (38 )   (205 )

Acquisition of dealer generated customer accounts and bulk account purchases

    (12 )   (13 )

Sales and maturities of investments

    39     83  

Purchases of investments

    (119 )   (43 )

Other

    (6 )   18  
           

Net cash used in investing activities

    (324 )   (343 )
           

Net cash used in discontinued investing activities

        (566 )
           

Cash Flows From Financing Activities:

             

Proceeds from issuance of short-term debt

    100     880  

Repayment of short-term debt

    (101 )   (880 )

Proceeds from exercise of share options

    94     88  

Dividends paid

    (140 )   (231 )

Repurchase of common shares by treasury

    (200 )   (300 )

Transfer (to) from discontinued operations

    (30 )   194  

Other

    (17 )   (19 )
           

Net cash used in financing activities

    (294 )   (268 )
           

Net cash provided by (used in) discontinued financing activities

    30     (196 )

Effect of currency translation on cash

    (3 )   10  

Effect of currency translation on cash related to discontinued operations

        5  
           

Net decrease in cash and cash equivalents

    (382 )   (304 )

Less: net increase in cash and cash equivalents related to discontinued operations

    32     91  

Cash and cash equivalents at beginning of period

    844     1,229  
           

Cash and cash equivalents at end of period

  $ 430   $ 834  
           

   

See Notes to Unaudited Consolidated Financial Statements.

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TYCO INTERNATIONAL LTD.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (UNAUDITED)

For the Six Months Ended March 29, 2013 and March 30, 2012

(in millions)

 
  Number of
Common Shares
  Common
Shares at
Par Value
  Treasury
Shares
  Contributed
Surplus
  Accumulated
Earnings
  Accumulated
Other
Comprehensive
(Loss)
Income
  Total Tyco
Shareholders'
Equity
  Nonredeemable
Noncontrolling
Interest
  Total
Equity
 

Balance as of September 30, 2011

    465   $ 2,792   $ (951 ) $ 10,717   $ 2,027   $ (436 ) $ 14,149   $ 5   $ 14,154  

Comprehensive income:

                                                       

Net income

                            645           645           645  

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

                                  119     119           119  

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

                                  2     2           2  

Defined benefit and post retirement plans, net of income tax expense of $4 million

                                  7     7           7  
                                                   

Total comprehensive income

                                        773         773  

Dividends declared

                      (229 )               (229 )         (229 )

Shares issued from treasury for vesting of share based equity awards

    4           210     (122 )               88           88  

Repurchase of common shares

    (7 )         (300 )                     (300 )         (300 )

Compensation expense

                      52                 52           52  

Noncontrolling interest related to acquisitions

                                            13     13  

Other

                (19 )                     (19 )   (1 )   (20 )
                                       

Balance as of March 30, 2012

    462   $ 2,792   $ (1,060 ) $ 10,418   $ 2,672   $ (308 ) $ 14,514   $ 17   $ 14,531  
                                       

 

 
  Number of
Common
Shares
  Common
Shares at
Par Value
  Treasury
Shares
  Contributed
Surplus
  Accumulated
Earnings
  Accumulated
Other
Comprehensive
(Loss)
Income
  Total Tyco
Shareholders'
Equity
  Nonredeemable
Noncontrolling
Interest
  Total
Equity
 

Balance as of September 28, 2012

    462   $ 2,792   $ (1,094 ) $ 1,763   $ 2,499   $ (966 ) $ 4,994   $ 16   $ 5,010  

Comprehensive income:

                                                       

Net income

                            235           235         235  

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

                                  (91 )   (91 )         (91 )

Unrealized gain on marketable securities and derivative instruments, net of income tax benefit of $2 million              

                                  1     1           1  

Defined benefit and post retirement plans, net of income tax expense of $4 million

                                  9     9           9  
                                                   

Total comprehensive income

                                        154         154  

Dividends declared

                      (297 )               (297 )         (297 )

Shares issued from treasury for vesting of share based equity awards

    9           344     (250 )               94           94  

Repurchase of common shares

    (7 )         (200 )                     (200 )         (200 )

Compensation expense

                      31                 31           31  

Other

    (1 )         (17 )   (45 )               (62 )       (62 )
                                       

Balance as of March 29, 2013

    463   $ 2,792   $ (967 ) $ 1,202   $ 2,734   $ (1,047 ) $ 4,714   $ 16   $ 4,730  
                                       

   

See Notes to Unaudited Consolidated Financial Statements.

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TYCO INTERNATIONAL LTD.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1.    Basis of Presentation and Summary of Significant Accounting Policies

        Basis of Presentation—The Consolidated Financial Statements included herein are unaudited, but in the opinion of management, such financial statements include all adjustments, consisting of normal recurring adjustments, necessary to summarize fairly the Company's financial position, results of operations and cash flows for the interim period. The unaudited Consolidated Financial Statements include the consolidated results of Tyco International Ltd., a corporation organized under the laws of Switzerland, and its subsidiaries (Tyco and all its subsidiaries, hereinafter collectively referred to as the "Company" or "Tyco"). The unaudited Consolidated Financial Statements have been prepared in United States dollars ("USD") and in accordance with the instructions to Form 10-Q under the Securities Exchange Act of 1934, as amended. The results reported in these unaudited Consolidated Financial Statements should not be taken as indicative of results that may be expected for the entire year. These financial statements should be read in conjunction with the Consolidated Financial Statements and accompanying notes contained in the Company's Annual Report on Form 10-K for the fiscal year ended September 28, 2012 (the "2012 Form 10-K").

        Effective September 28, 2012, Tyco completed the spin-offs of The ADT Corporation ("ADT") and Pentair Ltd. (formerly known as Tyco Flow Control International Ltd. ("Tyco Flow Control")), formerly the North American residential security and flow control businesses of Tyco, respectively, into separate, publicly traded companies in the form of a distribution to Tyco shareholders. Immediately following the spin-off, Pentair, Inc. was merged with a subsidiary of Tyco Flow Control in a tax-free, all-stock merger (the "Merger"), with Pentair Ltd. ("Pentair") succeeding Pentair Inc. as an independent publicly traded company. The distribution was made on September 28, 2012, to Tyco shareholders of record on September 17, 2012. Each Tyco shareholder received 0.50 of a common share of ADT and approximately 0.24 of a common share of Pentair for each Tyco common share held on the record date. The distribution was structured to be tax-free to Tyco shareholders except to the extent of cash received in lieu of fractional shares. The distributions, the Merger and related transactions are collectively referred to herein as the "2012 Separation". As a result of the distribution, the operations of Tyco's former flow control and North American residential security businesses are now classified as discontinued operations in all periods presented.

        After giving effect to the 2012 Separation, the Company operates and reports financial and operating information in the following three segments: North America Systems Installation & Services ("NA Installation & Services"), Rest of World Systems Installation & Services ("ROW Installation & Services") and Global Products. The Company also provides general corporate services to its segments which is reported as a fourth non-operating segment, Corporate and Other, and accordingly, prior period segment amounts have been recast to conform to the current period presentation. See Note 15.

        References to 2013 and 2012 are to Tyco's fiscal quarters ending March 29, 2013 and March 30, 2012, respectively, unless otherwise indicated.

        The Company has a 52 or 53-week fiscal year that ends on the last Friday in September. Fiscal years 2013 and 2012 are both 52-week years.

        Recently Adopted Accounting Pronouncements—In June 2011, the Financial Accounting Standards Board ("FASB") issued authoritative guidance for the presentation of comprehensive income. The guidance amended the reporting of Other Comprehensive Income ("OCI") by eliminating the option to present OCI as part of the Consolidated Statement of Shareholders' Equity. The amendment will not impact the accounting for OCI, but only its presentation in the Company's Consolidated Financial

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TYCO INTERNATIONAL LTD.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

1.    Basis of Presentation and Summary of Significant Accounting Policies (Continued)

Statements. The guidance requires that items of net income and OCI be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements which include total net income and its components, consecutively followed by total OCI and its components to arrive at total comprehensive income. In December 2011, the FASB issued authoritative guidance to defer the effective date for those aspects of the guidance relating to the presentation of reclassification adjustments out of Accumulated other comprehensive income ("AOCI") by component. The guidance, other than as it relates to the presentation of reclassification adjustments, became effective for Tyco in the first quarter of fiscal 2013 and was applied retrospectively to prior periods. See Note 14.

        In September 2011, the FASB issued authoritative guidance which amends the process of testing goodwill for impairment. Additionally, in July 2012, the FASB issued authoritative guidance which similarly amended the process of testing indefinite-lived intangible assets for impairment. The guidance permits an entity to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not (defined as having a likelihood of more than fifty percent) that the fair value of a reporting unit or indefinite-lived intangible asset is less than its carrying amount. If an entity determines it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, performing the traditional two step goodwill impairment test is unnecessary. If an entity concludes otherwise, it would be required to perform the first step of the two step goodwill impairment test. If the carrying amount of the reporting unit exceeds its fair value, then the entity is required to perform the second step of the goodwill impairment test. If an entity determines it is not more likely than not that the fair value of an indefinite-lived intangible asset is less than its carrying amount, then the entity is not required to take further action. If an entity concludes otherwise, it would be required to perform a quantitative impairment test by calculating the fair value of the asset and comparing it with its carrying amount. If the carrying amount of the reporting unit exceeds its fair value, then the entity shall recognize an impairment loss in an amount equal to that excess. However, an entity has the option to bypass the qualitative assessment in any period and proceed directly to the quantitative assessment. The guidance became effective for Tyco for interim impairment testing beginning in the first quarter of fiscal 2013.

        Recently Issued Accounting Pronouncements—In January 2013, the FASB issued authoritative guidance clarifying the scope of disclosures about offsetting assets and liabilities. The guidance amended the scope of the offsetting disclosures to derivatives accounted for in accordance with authoritative guidance for derivatives and hedging, including bifurcated embedded derivatives, repurchase agreements and reverse repurchase agreements, and securities borrowing and securities lending transactions that either offset or are subject to an enforceable master netting agreement or similar agreement. The guidance is applied retrospectively and will be effective for Tyco in the first fiscal quarter of fiscal 2014. The Company is currently assessing the impact, if any, the guidance will have on its disclosures.

        In February 2013, the FASB issued authoritative guidance for the reporting of amounts reclassified out of AOCI. The amendment will not change the current requirements for reporting net income or OCI in the financial statements. The guidance requires the presentation, either on the face of the statement where net income is presented or in the notes, the significant reclassifications out of AOCI by the respective line items of net income if the amount reclassified is required under U.S. generally accepted accounting principles ("U.S. GAAP") to be reclassified to net income in its entirety in the same reporting period. For other amounts that are not required under U.S. GAAP to be reclassified in

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TYCO INTERNATIONAL LTD.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

1.    Basis of Presentation and Summary of Significant Accounting Policies (Continued)

their entirety to net income, the amendment requires a cross-reference to other disclosures under U.S. GAAP that provide additional detail about those amounts. The guidance will be effective for Tyco in the first quarter of fiscal 2014, with early adoption permitted. The Company is currently assessing the timing of its adoption along with what impact, if any, the guidance will have upon adoption.

        In March 2013, the FASB issued authoritative guidance to resolve diversity in practice on the accounting for the cumulative translation adjustment ("CTA") when a parent either sells a part or all of its investment in a foreign entity or no longer holds a controlling financial interest in a subsidiary or group of assets within a foreign entity. The guidance requires that the parent release any CTA into net income when the parent ceases to have a controlling financial interest in a subsidiary or group of assets within a foreign entity which results in a substantially complete liquidation of the foreign entity; when the sale of an investment in a foreign entity results in the loss of a controlling financial interest; or where an acquirer obtains control of an acquiree in which it had an equity interest immediately before the acquisition date. The guidance does not change the requirement to release a pro rata portion of the CTA into net income upon a partial sale of an equity method investment that is a foreign entity. The guidance will be effective for Tyco in the first quarter of fiscal 2015, with early adoption permitted. The Company is currently assessing the timing of its adoption along with what impact, if any, the guidance will have upon adoption.

2.    2012 Separation Transaction

        On September 28, 2012, the Company completed the spin-offs of ADT and Tyco Flow Control, formerly the North American residential security and flow control businesses of Tyco, respectively, into separate, publicly traded companies in the form of a distribution to Tyco shareholders.

        In connection with activities taken to complete the 2012 Separation and to create the revised organizational structure of the Company, the Company incurred pre-tax charges ("Separation Charges") of $18 million and $67 million during the quarters ended March 29, 2013 and March 30, 2012, respectively, and $32 million and $124 million for the six months ended March 29, 2013 and March 30, 2012, respectively. The amounts presented within discontinued operations are costs directly related to the 2012 Separation that are not expected to provide a future benefit to the Company. The

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TYCO INTERNATIONAL LTD.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2.    2012 Separation Transaction (Continued)

components of the Separation Charges incurred within continuing operations and discontinued operations consisted of the following ($ in millions):

 
  For the Quarter Ended
March 29, 2013
  For the Quarter Ended
March 30, 2012
 
 
  Continuing
Operations
  Discontinued
Operations
  Total   Continuing
Operations
  Discontinued
Operations
  Total  

Professional fees

  $   $ 1   $ 1   $   $ 47   $ 47  

Information technology related costs

    2         2         5     5  

Employee compensation costs

        1     1     4     2     6  

Marketing costs

    13         13         2     2  

Other costs

    1         1         7     7  
                           

Total pre-tax separation charges

    16     2     18     4     63     67  

Tax-related separation charges

                1         1  

Tax expense on pre-tax separation charges                        

    3         3              
                           

Total separation charges, net of tax benefit

  $ 19   $ 2   $ 21   $ 5   $ 63   $ 68  
                           

 

 
  For the Six Months Ended
March 29, 2013
  For the Six Months Ended
March 30, 2012
 
 
  Continuing
Operations
  Discontinued
Operations
  Total   Continuing
Operations
  Discontinued
Operations
  Total  

Professional fees

  $   $ 4   $ 4   $   $ 77   $ 77  

Non-cash impairment charges

                23         23  

Information technology related costs

    4     2     6         6     6  

Employee compensation costs

        2     2     7     2     9  

Marketing costs

    27         27         2     2  

Other costs

    3     (10 )   (7 )       7     7  
                           

Total pre-tax separation charges

    34     (2 )   32     30     94     124  

Tax-related separation charges

    4         4     1         1  

Tax benefit on pre-tax separation charges                        

    (2 )       (2 )   (1 )       (1 )
                           

Total separation charges (gain), net of tax benefit

  $ 36   $ (2 ) $ 34   $ 30   $ 94   $ 124  
                           

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TYCO INTERNATIONAL LTD.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2.    2012 Separation Transaction (Continued)

        Separation Charges were classified in continuing operations within the Company's Consolidated Statement of Operations as follows ($ in millions):

 
  For the Quarters
Ended
  For the Six
Months Ended
 
 
  March 29,
2013
  March 30,
2012
  March 29,
2013
  March 30,
2012
 

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

  $ 16   $   $ 29   $  

Separation costs

        4     5     4  

Restructuring and asset impairments charges, net

                26  
                   

Total

  $ 16   $ 4   $ 34   $ 30  
                   

3.    Divestitures

        The Company continually assesses the strategic fit of its various businesses and from time to time divests businesses which do not align with its long-term strategy.

        During the second quarter of 2013, the Company approved a plan to sell its North America guarding business in its NA Installation & Services segment. As of March 29, 2013, the business was still owned by Tyco. Therefore, this business has been accounted for as held for sale as of both March 29, 2013 and September 28, 2012; however, its results of operations are presented in continuing operations. Total assets to be divested of $29 million and $35 million are included in Prepaid expenses and other current assets on the accompanying Consolidated Balance Sheets as of March 29, 2013 and September 28, 2012, respectively. Total liabilities to be divested of $5 million and $8 million are included in Accrued and other current liabilities on the accompanying Consolidated Balance Sheets as of March 29, 2013 and September 28, 2012, respectively. Subsequent to March 29, 2013, the Company entered into a definitive agreement to sell the business. This business has not been presented in discontinued operations as it is not material to the Consolidated Financial Statements. The Company expects to complete the transaction during the third quarter of fiscal 2013.

Discontinued Operations

        On September 28, 2012, Tyco completed the 2012 Separation and has presented its former North American residential security and flow control businesses as discontinued operations in all periods prior to the completion of the 2012 Separation. See Note 1 for additional information regarding the 2012 Separation. At the time of the 2012 Separation, the Company used available information to develop its best estimates for certain assets and liabilities related to the Separation. In limited instances, final determination of the balances will be made in subsequent periods, such as in the case of working capital and the cash adjustments specified in the 2012 Separation and Distribution Agreement entered among the parties, and when final income tax returns are filed in certain jurisdictions where those returns include a combination of Tyco, ADT and/or Tyco Flow Control legal entities. During the six months ended March 29, 2013, $45 million was recorded within the Consolidated Statement of Shareholders' Equity as Other, primarily related to a cash true-up adjustment with ADT. The Company expects to finalize the cash true-up and working capital adjustments with Pentair during the second half of fiscal 2013, and these will be recorded through shareholders' equity. Any additional adjustments are not expected to be material.

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TYCO INTERNATIONAL LTD.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

3.    Divestitures (Continued)

        Additionally, the quarter and six months ended March 30, 2012 include $11 million of income tax expense associated with tax liabilities preceding the spin-offs of Covidien plc and TE Connectivity Ltd. (the "2007 Separation"), which was recorded in (loss) income from discontinued operations, net of income taxes in the Company's Consolidated Statements of Operations. The Company was reimbursed $8 million pursuant to a tax sharing agreement (the "2007 Tax Sharing Agreement") entered into in conjunction with the 2007 Separation, which was also recorded in (loss) income from discontinued operations, net of income taxes.

        During the quarter and six months ended March 30, 2012, the Company sold its Fire Equipment de Mexico, S.A. business, which was part of the Company's Global Products segment. The sale was completed for approximately $1 million of cash consideration and a pre-tax loss of $3 million was recorded in (loss) income from discontinued operations, net of income taxes in the Company's Consolidated Statements of Operations.

        Net revenue, pre-tax income, pre-tax separation gain (charges), net, pre-tax gain on sale of discontinued operations, income tax expense and (loss) income from discontinued operations, net of income taxes are as follows ($ millions):

 
  For the Quarters
Ended
  For the Six
Months Ended
 
 
  March 29,
2013
  March 30,
2012
  March 29,
2013
  March 30,
2012
 

Net revenue

  $   $ 1,804   $   $ 3,521  
                   

Pre-tax income

  $   $ 317   $   $ 622  

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

    (2 )   (63 )   2     (94 )

Pre-tax gain on sale of discontinued operations

        5         5  

Income tax expense

        (70 )       (120 )
                   

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

  $ (2 ) $ 189   $ 2   $ 413  
                   

Divestiture Charges (Gains), Net

        During the quarter and the six months ended March 29, 2013, the Company recorded a net loss of $9 million and $6 million, respectively, in Selling, general and administrative expenses in the Company's Consolidated Statements of Operations, primarily due to an indemnification related to the divestiture of the Company's Electrical and Metal Products business as well as the write-down to fair value, less cost to sell, of a business held for sale. Offsetting the loss for the six months ended March 29, 2013 was a net gain recorded for the quarter ending December 28, 2012 related to the favorable settlement of an indemnification resulting from the divestiture of the Company's Electrical and Metal Products business.

        For both the quarter and six months ended March 30, 2012, the Company recorded a net loss of $3 million in Selling, general and administrative expenses in the Company's Consolidated Statements of Operations in connection with the divestiture of certain businesses that did not meet the criteria for discontinued operations.

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TYCO INTERNATIONAL LTD.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

4.    Restructuring and Asset Impairment Charges, Net

        The Company continues to identify and pursue opportunities for cost savings through restructuring activities and workforce reductions to improve operating efficiencies across its businesses. The Company expects to incur restructuring and restructuring related charges of approximately $75 million in fiscal 2013, which does not include repositioning charges as described below.

        The Company recorded restructuring and asset impairment charges by action within restructuring and asset impairment charges, net in the Consolidated Statement of Operations as follows ($ in millions):

 
  For the Quarter
Ended March 29,
2013
  For the Quarter
Ended March 30,
2012
  For the Six Months
Ended March 29,
2013
  For the Six Months
Ended March 30,
2012
 

2013 actions

  $ 16   $   $ 21   $  

2012 actions

    2     10     6     42  

2011 and prior actions

    4     6     5     10  
                   

Total

  $ 22   $ 16   $ 32   $ 52  
                   

2013 Actions

        Restructuring and asset impairment charges, net, during the quarter and six months ended March 29, 2013 related to the 2013 actions are as follows ($ in millions):

 
  For the Quarter Ended March 29, 2013  
 
  Employee
Severance and
Benefits
  Facility Exit
and Other
Charges
  Total  

NA Installation & Services

  $ 4   $ 2   $ 6  

ROW Installation & Services

    7         7  

Global Products

    3         3  
               

Total

  $ 14   $ 2   $ 16  
               

 

 
  For the Six Months Ended March 29, 2013  
 
  Employee
Severance and
Benefits
  Facility Exit
and Other
Charges
  Total  

NA Installation & Services

  $ 4   $ 2   $ 6  

ROW Installation & Services

    9     1     10  

Global Products

    4         4  

Corporate and Other

    1         1  
               

Total

  $ 18   $ 3   $ 21  
               

        The rollforward of the reserves from September 28, 2012 to March 29, 2013 is as follows ($ in millions):

Balance as of September 28, 2012

  $  

Charges

    21  

Utilization

    (6 )
       

Balance as of March 29, 2013

  $ 15  
       

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TYCO INTERNATIONAL LTD.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

4.    Restructuring and Asset Impairment Charges, Net (Continued)

2012 Actions

        Restructuring and asset impairment charges, net, during the quarter and six months ended March 29, 2013 related to the 2012 actions are as follows ($ in millions):

 
  For the Quarter
Ended March 29,
2013
 
 
  Employee
Severance and
Benefits
 

ROW Installation & Services

  $ 2  

 

 
  For the Quarter Ended March 30, 2012  
 
  Employee
Severance and
Benefits
  Facility Exit
and Other
Charges
  Total  

NA Installation & Services

  $ 8   $ (1 ) $ 7  

ROW Installation & Services

    1     2     3  

Global Products

    1     1     2  

Corporate and Other

    (2 )       (2 )
               

Total

  $ 8   $ 2   $ 10  
               

 

 
  For the Six
Months Ended
March 29, 2013
 
 
  Employee
Severance and
Benefits
 

ROW Installation & Services

  $ 5  

Global Products

    1  
       

Total

  $ 6  
       

 

 
  For the Six Months Ended March 30, 2012  
 
  Employee
Severance and
Benefits
  Facility Exit
and Other
Charges(1)
  Total  

NA Installation & Services

  $ 8   $ 20   $ 28  

ROW Installation & Services

    4     3     7  

Global Products

    2     3     5  

Corporate and Other

    1     1     2  
               

Total

  $ 15   $ 27   $ 42  
               

(1)
Includes $20 million, $1 million and $2 million of asset impairment charges recorded by NA Installation & Services, ROW Installation & Services and Global Products, respectively, for the six months ended March 30, 2012 related to the 2012 Separation.

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TYCO INTERNATIONAL LTD.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

4.    Restructuring and Asset Impairment Charges, Net (Continued)

        Restructuring and asset impairment charges, net, incurred cumulative to date from initiation of the 2012 actions are as follows ($ in millions):

 
  Employee
Severance and
Benefits
  Facility Exit
and Other
Charges
  Total  

NA Installation & Services

  $ 10   $ 34   $ 44  

ROW Installation & Services

    27     5     32  

Global Products

    8     3     11  

Corporate and Other

    9     4     13  
               

Total

  $ 54   $ 46   $ 100  
               

        The rollforward of the reserves from September 28, 2012 to March 29, 2013 is as follows ($ in millions):

Balance as of September 28, 2012

  $ 38  

Charges

    7  

Reversals

    (1 )

Utilization

    (17 )

Reclass/transfers

    (1 )

Currency translation

    (1 )
       

Balance as of March 29, 2013

  $ 25  
       

2011 and prior actions

        The Company continues to maintain restructuring reserves related to actions initiated prior to fiscal 2012. The total amount of these reserves was $49 million and $65 million as of March 29, 2013 and September 28, 2012, respectively. The Company incurred $4 million and $5 million of restructuring charges, net for the quarter and six months ended March 29, 2013 and $6 million and $10 million of restructuring charges, net for the quarter and six months ended March 30, 2012, respectively, related to 2011 and prior actions. The aggregate remaining reserves primarily relate to facility exit costs for long-term non-cancelable lease obligations primarily within the Company's ROW Installation & Services segment.

        The rollforward of the reserves from September 28, 2012 to March 29, 2013 is as follows ($ in millions):

Balance as of September 28, 2012

  $ 65  

Charges

    7  

Reversals

    (2 )

Utilization

    (21 )

Reclass/transfers

    1  

Currency translation

    (1 )
       

Balance as of March 29, 2013

  $ 49  
       

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TYCO INTERNATIONAL LTD.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

4.    Restructuring and Asset Impairment Charges, Net (Continued)

Total Restructuring Reserves

        As of March 29, 2013 and September 28, 2012, restructuring reserves related to all actions were included in the Company's Consolidated Balance Sheets as follows ($ in millions):

 
  As of  
 
  March 29,
2013
  September 28,
2012
 

Accrued and other current liabilities

  $ 72   $ 84  

Other liabilities

    17     19  
           

Total

  $ 89   $ 103  
           

Repositioning

        The Company has initiated certain global actions designed to reduce its cost structure and improve future profitability by streamlining operations and better aligning functions, which the Company refers to as repositioning actions. These actions may or may not lead to a future restructuring action. During the second quarter of fiscal 2013, the Company recorded repositioning charges of $4 million primarily related to professional fees which have been reflected in Selling, general and administrative expenses in the Consolidated Statement of Operations.

5.    Acquisitions

Acquisitions

        During the quarter ended March 29, 2013, cash paid for acquisitions included in continuing operations totaled $15 million, net of $3 million cash acquired, which is related to an acquisition within the Company's ROW Installation & Services segment. During the six months ended March 29, 2013, cash paid for acquisitions included in continuing operations totaled $38 million, net of $3 million cash acquired, which is related to acquisitions within the Company's NA Installation & Services and ROW Installation & Services segments.

        During the quarter ended March 30, 2012, cash paid for acquisitions included in continuing operations totaled $110 million, net of $10 million cash acquired. These acquisitions, none of which were individually material, were included in the Global Products and ROW Installation & Services segments. During the six months ended March 30, 2012, cash paid for acquisitions included in continuing operations totaled $205 million, net of $15 million cash acquired, which includes the acquisition of Visonic Ltd. ("Visonic") and several acquisitions, none of which were individually material, that were included in the Global Products and ROW Installation & Services segments. Visonic is a global developer and manufacturer of electronic security systems and components. Cash paid for Visonic totaled approximately $94 million, net of $5 million cash acquired by the Company's Global Products segment.

Acquisition and Integration Related Costs

        Acquisition and integration costs are expensed as incurred. During the quarter and six months ended March 29, 2013, the Company incurred acquisition and integration costs of nil and $1 million,

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TYCO INTERNATIONAL LTD.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

5.    Acquisitions (Continued)

respectively. During the quarter and six months ended March 30, 2012, the Company incurred acquisition and integration costs of $1 million and $3 million, respectively. Such costs are recorded in Selling, general and administrative expenses in the Company's Consolidated Statements of Operations.

6.    Income Taxes

        The Company did not have a significant change to its unrecognized tax benefits during the quarter ended March 29, 2013.

        Many of Tyco's uncertain tax positions relate to tax years that remain subject to audit by the taxing authorities in U.S. federal, state and local or foreign jurisdictions. Open tax years in significant jurisdictions are as follows:

Jurisdiction
  Years Open
To Audit
 

Australia

    2004-2012  

Canada

    2002-2012  

Germany

    2005-2012  

South Korea

    2008-2012  

Switzerland

    2003-2012  

United Kingdom

    2003-2012  

United States

    1997-2012  

        Based on the current status of its income tax audits, the Company believes that it is reasonably possible that between nil and $30 million in unrecognized tax benefits may be resolved in the next twelve months.

        At each balance sheet date, management evaluates whether it is more likely than not that the Company's deferred tax assets will be realized and if sufficient future taxable income will be available by assessing current period and projected operating results and other pertinent data. As of March 29, 2013, the Company had recorded deferred tax assets of approximately $500 million, which is comprised of $2.4 billion gross deferred tax assets net of $1.9 billion valuation allowances.

Tax Sharing Agreement and Other Income Tax Matters

        In connection with the 2012 and 2007 Separations, the Company entered into the 2012 and 2007 Tax Sharing Agreements, respectively, that govern the respective rights, responsibilities, and obligations of the Company, Pentair and ADT after the 2012 Separation and the Company, Covidien and TE Connectivity after the 2007 Separation with respect to taxes. Specifically this includes ordinary course of business taxes and taxes, if any, incurred as a result of any failure of the respective distributions to qualify tax-free for U.S. federal income tax purposes within the meaning of Section 355 of the Internal Revenue Code ("the Code") or certain internal transactions undertaken in anticipation of the spin-offs to qualify for tax-favored treatment under the Code.

        Under the 2012 Tax Sharing Agreement, Tyco, Pentair and ADT share (i) certain pre-Distribution income tax liabilities that arise from adjustments made by tax authorities to ADT's, Tyco Flow Control's and Tyco's income tax returns, and (ii) payments required to be made by Tyco with respect to the 2007 Tax Sharing Agreement, excluding approximately $175 million of pre-2012 Separation related

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TYCO INTERNATIONAL LTD.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

6.    Income Taxes (Continued)

tax liabilities that were anticipated to be paid prior to the 2012 Separation (collectively, "Shared Tax Liabilities"). Tyco will be responsible for the first $500 million of Shared Tax Liabilities. Pentair and ADT will share 42% and 58%, respectively, of the next $225 million of Shared Tax Liabilities. Tyco, Pentair and ADT will share 52.5% 20% and 27.5%, respectively, of Shared Tax Liabilities above $725 million. All costs and expenses associated with the management of these shared tax liabilities will generally be shared 20%, 27.5%, and 52.5% by Pentair, ADT and Tyco, respectively. As of September 28, 2012, Tyco established liabilities representing the fair market value of its obligations under the 2012 Tax Sharing Arrangement which is recorded in other liabilities in 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 its, Covidien's and TE Connectivity's income tax liabilities, which result in cash payments, based on a sharing formula for periods prior to and including June 29, 2007. More specifically, Tyco, Covidien and TE Connectivity share 27%, 42% and 31%, respectively, of shared income tax liabilities that arise from adjustments made by tax authorities to Tyco's, Covidien's and TE Connectivity's U.S. and certain non-U.S. income tax returns. The costs and expenses associated with the management of these shared tax liabilities are generally shared equally among the parties. In connection with the execution of the 2007 Tax Sharing Agreement, Tyco established a net receivable from Covidien and TE Connectivity representing the amount Tyco expected to receive for pre-2007 Separation uncertain tax positions, including amounts owed to the Internal Revenue Service ("IRS"). Tyco also established liabilities representing the fair market value of its share of Covidien's and TE Connectivity's estimated obligations, primarily to the IRS, for their pre-2007 Separation taxes covered by the 2007 Tax Sharing Agreement.

        Tyco assesses the shared tax liabilities and related guaranteed liabilities related to both the 2012 and 2007 Tax Sharing Agreements at each reporting period. Tyco will provide payment to Pentair and ADT under the 2012 Tax Sharing Agreement and Covidien and TE Connectivity under the 2007 Tax Sharing Agreement as the shared income tax liabilities are settled. Settlement is expected to occur as the audit process by applicable taxing authorities is 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 potential future payments under the 2012 and 2007 Tax Sharing Agreements is not determinable. Such cash payments, when they occur, will reduce the guarantor liability as such payments represent an equivalent reduction of risk. Tyco also assesses the sufficiency of the 2012 and 2007 Tax Sharing Agreements guarantee liabilities on a quarterly basis and will increase the liability when it is probable that cash payments expected to be made under the 2012 or 2007 Tax Sharing Agreements exceed the recorded balance.

        Tyco and its subsidiaries' income tax returns are examined periodically by various tax authorities. In connection with these examinations, tax authorities, including the IRS, have raised issues and proposed tax adjustments, in particular with respect to years preceding the 2007 Separation. The issues and proposed adjustments related to such years are generally subject to the sharing provisions of the 2007 Tax Sharing Agreement and Tyco's liabilities under the 2007 Tax Sharing Agreement are further subject to the sharing provisions in the 2012 Tax Sharing Agreement. Tyco is reviewing and contesting certain of the proposed tax adjustments. With respect to adjustments raised by the IRS, although Tyco has resolved a substantial number of these adjustments, a few significant items are expected to remain open with respect to the audit of the 1997 through 2004 years. As of the date hereof, it is unlikely that Tyco will be able to resolve all the open items, which primarily involve the treatment of certain intercompany debt transactions during the period, through the IRS appeals process. As a result, Tyco

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TYCO INTERNATIONAL LTD.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

6.    Income Taxes (Continued)

expects to litigate these matters once it receives the requisite statutory notices from the IRS, which is expected to occur during fiscal 2013. The Company has assessed its obligations under the 2007 Tax Sharing Agreement to determine that its recorded liability is sufficient to cover the indemnifications made by the Company under such agreement. In the absence of observable transactions for identical or similar guarantees, the Company determined the fair value of these guarantees and indemnifications utilizing expected present value measurement techniques. Significant assumptions utilized to determine fair value included determining a range of potential outcomes, assigning a probability weighting to each potential outcome and estimating the anticipated timing of resolution. The probability weighted outcomes were discounted using the Company's incremental borrowing rate. However, the ultimate resolution of these matters is uncertain and could result in a material adverse impact to the Company's financial position, results of operations, cash flows or the effective tax rate in future reporting periods.

        In connection with the aforementioned audits, the IRS has assessed a civil fraud penalty of $21 million during the first quarter of fiscal 2013 against a prior subsidiary that was distributed to TE Connectivity in connection with the 2007 Separation. The penalties arise from actions of former executives taken in connection with intercompany transfers of stock of Simplex Technologies in 1998 and 1999. This is a pre-2007 Separation tax liability that is covered by the provisions of the 2007 Tax Sharing Agreement.

        In addition to dealing with tax liabilities for periods prior to the respective Separations, the 2012 and 2007 Tax Sharing Agreements contain sharing provisions to address the contingencies that the 2012 or 2007 Separations, or internal transactions related thereto, may be deemed taxable by U.S. or non U.S. taxing authorities. In the event the 2012 Separation is determined to be taxable and such determination was the result of actions taken after the 2012 Separations by Tyco, ADT or Pentair, the party responsible for such failure would be responsible for all taxes imposed on each company as a result thereof. If such determination is not the result of actions taken by Tyco, ADT or Pentair after the 2012 Separation, then Tyco, ADT and Pentair would be responsible for any taxes imposed on any of the companies as a result of such determination in the same manner and in the same proportions as described above. Similar provisions exist in the 2007 Tax Sharing Agreement. If either of the 2007 or 2012 Separation, or internal transactions taken in anticipation thereof, were deemed taxable, the associated liability could be significant. The Company is responsible for all of its own taxes that are not shared pursuant to the 2012 and 2007 Tax Sharing Agreements sharing formulas. In addition, Pentair and ADT, and Covidien and TE Connectivity are responsible for their tax liabilities that are not subject to the 2012 or 2007 Tax Sharing Agreements' sharing formula, respectively.

        Each of the 2012 and 2007 Tax Sharing Agreements provides that, if any party to such agreement were to default in its obligation to another party to pay its share of the distribution taxes that arise as a result of no party's fault, each non-defaulting party to the agreement would be required to pay, equally with any other non-defaulting party to the agreement, the amounts in default. In addition, if another party to the 2012 or 2007 Tax Sharing Agreements that is responsible for all or a portion of an income tax liability were to default in its payment of such liability to a taxing authority, Tyco could be liable under applicable tax law for such liabilities and required to make additional tax payments. Accordingly, under certain circumstances, Tyco may be obligated to pay amounts in excess of its agreed-upon share of its tax liabilities under either of the 2012 or 2007 Tax Sharing Agreements.

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TYCO INTERNATIONAL LTD.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

6.    Income Taxes (Continued)

        The receivables and liabilities related to the 2012 and 2007 Tax Sharing Agreements as of March 29, 2013 and September 28, 2012, are as follows ($ in millions):

 
  2012 Tax Sharing Agreement   2007 Tax Sharing Agreement  
 
  As of
March 29,
2013
  As of
September 28,
2012
  As of
March 29,
2013
  As of
September 28,
2012
 

Prepaid expenses and other current assets

  $   $   $ 8   $ 9  

Other assets

            66     66  
                   

            74     75  
                   

Accrued and other current liabilities

            (14 )   (14 )

Other liabilities

    (71 )   (71 )   (394 )   (394 )
                   

    (71 )   (71 )   (408 )   (408 )
                   

Net liability

  $ (71 ) $ (71 ) $ (334 ) $ (333 )
                   

        The Company recorded income (loss) in conjunction with the 2012 and 2007 Tax Sharing Agreements for the quarters and six months ended March 29, 2013 and March 30, 2012 as follows ($ in millions):

 
  For the Quarters Ended   For the Six Months Ended  
 
  March 29,
2013
  March 30,
2012
  March 29,
2013
  March 30,
2012
 

(Expense)

                         

2012 Tax Sharing Agreement

  $ (20 )   N/A   $ (30 )   N/A  

2007 Tax Sharing Agreement

        (5 )       (4 )

        As a result of the 2012 separation, equity awards of certain employees were converted into the three companies. Pursuant to the terms of the 2012 Separation and Distribution Agreement, each of the three companies is responsible for issuing its own shares upon employee exercise of a stock option award or vesting of a restricted unit award. However, the 2012 Tax Sharing Agreement provides that any allowable compensation tax deduction for such awards is to be claimed by the employee's current employer. The 2012 Tax Sharing Agreement requires the employer claiming a tax deduction for shares issued by the other companies to pay a percentage of the allowable tax deduction to the company issuing the equity.

        During the quarter and six months ended March 29, 2013, the Company incurred a charge of $20 million and $34 million, respectively, to make payments to ADT and Pentair based on estimated allowable deductions for ADT and Pentair shares issued to Company employees, offset by income of nil and $4 million, respectively, to be received from ADT and Pentair for Company shares issued to their employees, resulting in a net impact of approximately $20 million and $30 million, respectively, which was recorded in Other (expense) income, net within the Company's Consolidated Statement of Operations.

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TYCO INTERNATIONAL LTD.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

6.    Income Taxes (Continued)

Other Income Tax Matters

        Except for earnings that are currently distributed, no additional material provision has been made for U.S. or non-U.S. income taxes on the undistributed earnings of subsidiaries or for unrecognized deferred tax liabilities for temporary differences related to investments in subsidiaries, since the earnings are expected to be permanently reinvested, the investments are essentially permanent in duration, or the Company 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.

7.    Earnings Per Share

        The reconciliations between basic and diluted earnings per share attributable to Tyco common shareholders are as follows (in millions, except per share data):

 
  For the Quarter Ended
March 29, 2013
  For the Quarter Ended
March 30, 2012
 
 
  Income   Shares   Per Share
Amount
  Income   Shares   Per Share
Amount
 

Basic earnings per share attributable to Tyco common shareholders:

                                     

Income from continuing operations

  $ 74     466   $ 0.16   $ 134     463   $ 0.29  

Share options and restricted share awards

        8               6        
                               

Diluted earnings per share attributable to Tyco common shareholders:

                                     

Income from continuing operations attributable to Tyco common shareholders, giving effect to dilutive adjustments

  $ 74     474   $ 0.16   $ 134     469   $ 0.29  
                           

 

 
  For the Six Months Ended
March 29, 2013
  For the Six Months Ended
March 30, 2012
 
 
  Income   Shares   Per Share
Amount
  Income   Shares   Per Share
Amount
 

Basic earnings per share attributable to Tyco common shareholders:

                                     

Income from continuing operations

  $ 233     466   $ 0.50   $ 232     463   $ 0.50  

Share options and restricted share awards

        7               6        
                               

Diluted earnings per share attributable to Tyco common shareholders:

                                     

Income from continuing operations attributable to Tyco common shareholders, giving effect to dilutive adjustments

  $ 233     473   $ 0.49   $ 232     469   $ 0.50  
                           

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TYCO INTERNATIONAL LTD.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

7.    Earnings Per Share (Continued)

        The computation of diluted earnings per share for the quarter and six months ended March 29, 2013 excludes the effect of the potential exercise of share options to purchase approximately 4 million and 5 million shares, respectively, and excludes restricted stock units of approximately 1 million and 1 million shares, respectively, because the effect would be anti-dilutive.

        The computation of diluted earnings per share for the quarter and six months ended March 30, 2012 excludes the effect of the potential exercise of share options to purchase approximately 4 million and 6 million shares, respectively, and excludes restricted stock units of nil for both periods because the effect would be anti-dilutive.

8.    Goodwill and Intangible Assets

        The changes in the carrying amount of goodwill by segment are as follows ($ in millions):

 
  NA Installation &
Services
  ROW
Installation &
Services
  Global
Products
  Total  

As of September 30, 2011

                         

Gross Goodwill

  $ 2,119   $ 2,241   $ 1,629   $ 5,989  

Impairments

    (126 )   (1,068 )   (567 )   (1,761 )
                   

Carrying Amount of Goodwill

    1,993     1,173     1,062     4,228  
                   

Acquisitions/Purchase Accounting Adjustments

        38     66     104  

Currency Translation

    8     26     1     35  
                   

As of September 28, 2012

                         

Gross Goodwill

    2,127     2,305     1,696     6,128  

Impairments

    (126 )   (1,068 )   (567 )   (1,761 )
                   

Carrying Amount of Goodwill

    2,001     1,237     1,129     4,367  
                   

Acquisitions/Purchase Accounting Adjustments

    24     6     (1 )   29  

Currency Translation

    (6 )   (37 )   (8 )   (51 )
                   

As of March 29, 2013

                         

Gross Goodwill

    2,145     2,274     1,687     6,106  

Impairments

    (126 )   (1,068 )   (567 )   (1,761 )
                   

Carrying Amount of Goodwill

  $ 2,019   $ 1,206   $ 1,120   $ 4,345  
                   

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TYCO INTERNATIONAL LTD.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

8.    Goodwill and Intangible Assets (Continued)

        The following table sets forth the gross carrying amount and accumulated amortization of the Company's intangible assets as of March 29, 2013 and September 28, 2012 ($ in millions):

 
  As of  
 
  March 29, 2013   September 28, 2012  
 
  Gross
Carrying
Amount
  Accumulated
Amortization
  Gross
Carrying
Amount
  Accumulated
Amortization
 

Amortizable:

                         

Contracts and related customer relationships

  $ 1,604   $ 1,272   $ 1,604   $ 1,245  

Intellectual property

    549     470     552     468  

Other

    37     13     36     9  
                   

Total

  $ 2,190   $ 1,755   $ 2,192   $ 1,722  
                   

Non-Amortizable:

                         

Intellectual property

  $ 223         $ 224        

Franchise rights

    77           77        
                       

Total

  $ 300         $ 301        
                       

        Intangible asset amortization expense for the quarters ended March 29, 2013 and March 30, 2012 was $26 million for both periods. Intangible asset amortization expense for the six months ended March 29, 2013 and March 30, 2012 was $51 million for both periods.

        The estimated aggregate amortization expense on intangible assets is expected to be approximately $50 million for the remainder of 2013, $80 million for 2014, $67 million for 2015, $62 million for 2016, $51 million for 2017 and $125 million for 2018 and thereafter.

9.    Debt

        Debt as of March 29, 2013 and September 28, 2012 is as follows ($ in millions):

 
  As of  
 
  March 29,
2013
  September 28,
2012
 

3.375% public notes due 2015

  $ 258   $ 257  

3.75% public notes due 2018

    67     67  

8.5% public notes due 2019

    364     364  

7.0% public notes due 2019

    246     247  

6.875% public notes due 2021

    466     466  

4.625% public notes due 2023

    42     42  

Other(1)(2)

    49     48  
           

Total debt

    1,492     1,491  

Less current portion

    11     10  
           

Long-term debt

  $ 1,481   $ 1,481  
           

(1)
$11 million of the amount shown as other, comprises the current portion of the Company's total debt as of March 29, 2013.

(2)
$10 million of the amount shown as other, comprises the current portion of the Company's total debt as of September 28, 2012.

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TYCO INTERNATIONAL LTD.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

9.    Debt (Continued)

    Fair Value

        The carrying amount of Tyco's debt subject to the fair value disclosure requirements as of March 29, 2013 and September 28, 2012 was $1,443 million for both periods. The Company utilizes various valuation methodologies to determine the fair value of its debt, which is primarily dependent on the type of market in which the Company's debt is traded. When available, the Company uses quoted market prices to determine the fair value of its debt that is traded in active markets. As of March 29, 2013 and September 28, 2012, the fair value of the Company's debt which was actively traded was $1,737 million and $1,786 million, respectively. As of March 29, 2013 and September 28, 2012, the Company's debt that was subject to the fair value disclosure requirements was all actively traded and is classified as Level 1 in the fair value hierarchy.

    Commercial paper

        From time to time Tyco International Finance S.A. ("TIFSA") may issue commercial paper for general corporate purposes. The maximum aggregate amount of unsecured commercial paper notes available to be issued on a private placement basis under the commercial paper program is $1.0 billion as of March 29, 2013. As of March 29, 2013 and September 28, 2012, TIFSA had no commercial paper outstanding.

    Credit Facilities

        The Company's committed revolving credit facilities totaled $1.0 billion as of March 29, 2013. These revolving credit facilities may be used for working capital, capital expenditures and general corporate purposes. As of both March 29, 2013 and September 28, 2012, there were no amounts drawn under the Company's revolving credit facilities. Interest under the revolving credit facilities is variable and is calculated by reference to LIBOR or an alternate base rate.

10.    Financial Instruments

        The Company's financial instruments consist primarily of cash and cash equivalents, accounts receivable, investments, accounts payable, debt and derivative financial instruments. The fair value of cash and cash equivalents, accounts receivable and accounts payable approximated book value as of March 29, 2013 and September 28, 2012. The fair value of derivative financial instruments was not material to any of the periods presented. See below for the fair value of investments and Note 9 for the fair value of debt.

Derivative Instruments

        In the normal course of business, Tyco is exposed to market risk arising from changes in currency exchange rates, interest rates and commodity prices. The Company may use derivative financial instruments to manage exposures to foreign currency, interest rate and commodity risks. The Company's objective for utilizing derivative financial instruments is to manage these risks using the most effective methods to eliminate or reduce the impacts of these exposures. The Company does not use derivative financial instruments for trading or speculative purposes. As of and during the six months ended March 29, 2013 the Company did not hold or enter into any commodity swaps or interest rate swaps.

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TYCO INTERNATIONAL LTD.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

10.    Financial Instruments (Continued)

        For derivative instruments that are designated and qualified as hedging instruments for accounting purposes, the Company documents and links the relationships between the hedging instruments and hedged items. The Company also assesses and documents at the hedge's inception whether the derivatives used in hedging transactions are effective in offsetting changes in fair values associated with the hedged items. For the quarters and the six months ended March 29, 2013, the Company did not have hedging instruments that were qualified for accounting purposes. For the quarter and the six months ended March 30, 2012, the Company did have hedging instruments that were qualified for accounting purposes. These hedges did not result in any hedge ineffectiveness for the quarters and six months ended March 30, 2012.

        All derivative financial instruments are reported on the Consolidated Balance Sheet at fair value with changes in the fair value of the derivative financial instruments recognized currently in the Company's Statement of Operations. The derivative financial instruments and impact of such changes in the fair value of the derivative financial instruments was not material to the Consolidated Balance Sheets as of March 29, 2013 and September 28, 2012 or Consolidated Statements of Operations, Consolidated Statements of Comprehensive Income and Statement of Cash Flows for the quarters and six months ended March 29, 2013 and March 30, 2012.

Foreign Currency Exposures

        The Company manages foreign currency exchange rate risk through the use of derivative financial instruments comprised principally of forward contracts on foreign currency which are not designated as hedging instruments for accounting purposes. The objective of the derivative instruments is to minimize the income statement impact and potential variability in cash flows associated with intercompany loans, accounts receivable, accounts payable and forecasted transactions that are denominated in certain foreign currencies. As of March 29, 2013 and September 28, 2012, the total gross notional amount of the Company's foreign exchange contracts was $206 million and $225 million, respectively.

Counterparty Credit Risk

        The use of derivative financial instruments exposes the Company to counterparty credit risk. If the counterparty fails to perform, the Company is exposed to losses if the derivative is in an asset position. When the fair value of a derivative instrument is an asset, the counterparty has to pay the Company to settle the contract. This exposes the Company to credit risk. However, when the fair value of a derivative instrument is a liability, the Company has to pay the counterparty to settle the contract and therefore there is no counterparty credit risk. Tyco has established policies and procedures to limit the potential for counterparty credit risk, including establishing limits for credit exposure and continually assessing the creditworthiness of counterparties. As a matter of practice, the Company deals with major banks worldwide having strong investment grade long-term credit ratings from Standard & Poor's and Moody's. To further reduce the risk of loss, the Company generally enters into International Swaps and Derivatives Association master agreements with substantially all of its counterparties. Master netting agreements provide protection in bankruptcy in certain circumstances and, in some cases, enable receivables and payables with the same counterparty to be offset on the Consolidated Balance Sheets, providing for a more meaningful balance sheet presentation of credit exposure. The Company's derivative contracts do not contain any credit risk related contingent features and do not require collateral or other security to be furnished by the Company or the counterparties.

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TYCO INTERNATIONAL LTD.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

10.    Financial Instruments (Continued)

        The Company's exposure to credit risk associated with its derivative instruments is measured on an individual counterparty basis, as well as by groups of counterparties that share similar attributes. As of March 29, 2013, the Company was exposed to industry concentration with financial institutions as well as risk of loss if an individual counterparty or issuer failed to perform its obligations under contractual terms. The maximum amount of loss that the Company would incur as of March 29, 2013 without giving consideration to the effects of legally enforceable master netting agreements was approximately $2 million.

Fair Value of Financial Instruments

        Authoritative guidance for fair value measurements establishes a three-level hierarchy that ranks the quality and reliability of information used in developing fair value estimates. The hierarchy gives the highest priority to quoted prices in active markets and the lowest priority to unobservable data. In cases where two or more levels of inputs are used to determine fair value, a financial instrument's level is determined based on the lowest level input that is considered significant to the fair value measurement in its entirety. The three levels of the fair value hierarchy are summarized as follows:

    Level 1—inputs are based upon quoted prices (unadjusted) in active markets for identical assets or liabilities which are accessible as of the measurement date.

    Level 2—inputs are based upon quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, and model-derived valuations for the asset or liability that are derived principally from or corroborated by market data for which the primary inputs are observable, including forward interest rates, yield curves, credit risk and exchange rates.

    Level 3—inputs for the valuation models are unobservable and are based on management's estimates of assumptions that market participants would use in pricing the asset or liability. The fair values are therefore determined using model-based techniques such as option pricing models and discounted cash flow models.

Investments

        Investments primarily include U.S. government obligations, U.S. government agency securities and corporate debt securities.

        When available, the Company uses quoted market prices to determine the fair value of investment securities. Such investments are included in Level 1. When quoted market prices are not readily available, pricing determinations are made based on the results of market approach valuation models using observable market data such as recently reported trades, bid and offer information and benchmark securities. These investments are included in Level 2 and consist primarily of U.S. government agency securities and corporate debt securities.

Assets Measured at Fair Value on a Recurring Basis

 
   
   
   
  Consolidated Balance Sheet
Classification
 
 
  As of March 29, 2013  
 
  Prepaids and
Other Current
Assets
  Other Assets  
($ in millions)
  Level 1   Level 2   Total  

Available-for-Sale Securities:

                               

Corporate debt securities

  $   $ 31   $ 31   $ 9   $ 22  

U.S. Government debt securities

    189     61     250     137     113  
                       

Total

  $ 189   $ 92   $ 281   $ 146   $ 135  
                       

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TYCO INTERNATIONAL LTD.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

10.    Financial Instruments (Continued)


 
   
   
   
  Consolidated Balance Sheet
Classification
 
 
  As of September 28, 2012  
 
  Prepaids and
Other Current
Assets
  Other
Assets
 
($ in millions)
  Level 1   Level 2   Total  

Available-for-Sale Securities:

                               

Corporate debt securities

  $   $ 34   $ 34   $ 7   $ 27  

U.S. Government debt securities

    86     83     169     63     106  
                       

Total

  $ 86   $ 117   $ 203   $ 70   $ 133  
                       

        During the quarter and six months ended March 29, 2013, the Company did not have any significant transfers between levels within the fair value hierarchy.

Other

        The Company had $1.9 billion and $2.0 billion of intercompany loans designated as permanent in nature as of March 29, 2013 and September 28, 2012, respectively. For the quarters ended March 29, 2013 and March 30, 2012, the Company recorded $84 million of cumulative translation loss and $43 million of cumulative translation gain, respectively, through accumulated other comprehensive loss related to these loans.

        For the six months ended March 29, 2013 and March 30, 2012, the Company recorded $62 million of cumulative translation loss and $27 million of cumulative translation gain, respectively, through accumulated other comprehensive loss related to these loans.

11.    Commitments and Contingencies

Legacy Matters Related to Former Management

        The Company is a party to several lawsuits involving disputes with former management, including its former chief executive officer, Mr. L. Dennis Kozlowski, its former chief financial officer, Mr. Mark Swartz and a former director, Mr. Frank Walsh Jr. The Company has filed civil complaints against Mr. Kozlowski and Mr. Swartz for breach of fiduciary duty and other wrongful conduct relating to alleged abuses of the Company's Key Employee Loan Program and relocation program, unauthorized bonuses, unauthorized payments, self dealing transactions and other improper conduct. In connection with Tyco's affirmative actions against Mr. Kozlowski and Mr. Swartz, Mr. Kozlowski, through counterclaims, and Mr. Swartz, through a separate lawsuit, are seeking an aggregate of approximately $140 million allegedly due in connection with their compensation and retention arrangements and under the Employee Retirement Income Security Act ("ERISA"). Mr. Walsh sought indemnification for legal and other expenses incurred by him in connection with the Company's affirmative action against him for breaches of fiduciary duties.

        With respect to Mr. Kozlowski, on December 1, 2010, the U.S. District Court for the Southern District of New York ruled in favor of several of the Company's affirmative claims against him before trial, while dismissing all of Mr. Kozlowski's counterclaims for pay and benefits after 1995. Prior to the commencement of trial scheduled for August 2012, the parties reached an agreement in principle to resolve the matter, with Mr. Kozlowski agreeing to release the Company from any claims to monetary

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TYCO INTERNATIONAL LTD.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

11.    Commitments and Contingencies (Continued)

amounts related to compensation, retention or other arrangements alleged to have existed between him and the Company. Although the parties have reached an agreement in principle, until the settlement agreement is signed, the Company will continue to maintain the amounts recorded in its Consolidated Balance Sheet, which reflect a net liability of approximately $91 million, for the amounts allegedly due under his compensation and retention arrangements and under ERISA.

        With respect to Mr. Swartz, on March 3, 2011, the U.S. District Court for the Southern District of New York granted the Company's motion for summary judgment as to liability for its affirmative actions and further ruled that issues related to damages would need to be resolved at trial. During the second quarter of fiscal 2012, the Company reversed a $50 million liability related to Mr. Swartz's pay and benefits due to the expiration of the statute of limitations, which was recorded in Selling, general and administrative expenses in the Consolidated Statement of Operations. On May 15, 2012, Mr. Swartz filed a lawsuit against Tyco in New York state court claiming entitlement to monies under ERISA. The Company removed the case to the U.S. district court for the Southern District of New York and filed a motion to dismiss Mr. Swartz's claims for multiple reasons, including that the statute of limitations had expired, at the latest, during the second quarter of fiscal 2012. A trial to determine the Company's damages from Mr. Swartz's breaches of fiduciary duty concluded on October 17, 2012. At the conclusion of the trial, the Court ruled that the Company was entitled to recover all monies earned by Mr. Swartz in connection with his employment by Tyco between September 1, 1995 and June 1, 2002. The Company filed a motion requesting the entry of monetary sum certain judgment in conformity with the Court's ruling regarding the time period of disgorgement. The motion also requested interest related to the monies Mr. Swartz was found to have unlawfully taken from the Company. In March 2013, the Court entered an order awarding the Company's request for interest. In connection with Mr. Swartz's affirmative claims against the Company, the Court dismissed all of Mr. Swartz's claims except one claim in which Mr. Swartz contends he is entitled to reimbursement from the Company for taxes he paid in connection with his 2002 Separation Agreement. The Court has not opined on the merits of this claim, and the Company intends to continue to vigorously defend this claim.

        With respect to Mr. Walsh, in June 2002, the Company filed a civil complaint against him for breach of fiduciary duty, inducing breaches of fiduciary duty and related wrongful conduct involving a $20 million payment by Tyco, $10 million of which was paid to Mr. Walsh with the balance paid to a charity of which Mr. Walsh is trustee. The payment was purportedly made for Mr. Walsh's assistance in arranging the Company's acquisition of The CIT Group, Inc. On December 17, 2002, Mr. Walsh pleaded guilty to a felony violation of New York law in the Supreme Court of the State of New York, (New York County) and settled a civil action for violation of federal securities laws brought by the U.S. Securities and Exchange Commission (the "SEC") in United States District Court for the Southern District of New York. Both the felony charge and the civil action were brought against Mr. Walsh based on such payment. The felony charge accused Mr. Walsh of intentionally concealing information concerning the payment from Tyco's directors and shareholders while engaged in the sale of Tyco securities in the State of New York. The SEC action alleged that Mr. Walsh knew that the registration statement covering the sale of Tyco securities as part of the CIT Group acquisition contained a material misrepresentation concerning fees payable in connection with the acquisition. Pursuant to the plea and settlement, Mr. Walsh paid $20 million in restitution to Tyco on December 17, 2002. In October 2010, the U.S. District Court for the Southern District of New York denied the Company's affirmative claims for recovery of damages against Mr. Walsh. In January 2012, the United States Court

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TYCO INTERNATIONAL LTD.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

11.    Commitments and Contingencies (Continued)

of Appeals for the Second Circuit reversed the District Court's ruling that Tyco's Board of Directors could ratify breaches of fiduciary duties owed by Mr. Walsh to Tyco's shareholders, and remanded the case to the District Court to resolve certain issues relating to consequential damages. On June 20, 2012, the District Court ruled in Tyco's favor and entered a judgment against Mr. Walsh. Separately, Mr. Walsh filed a New York state court claim against the Company asserting his entitlement to indemnification. In March 2013, Mr. Walsh and the Company entered into a settlement agreement resolving all claims they had against each other related to these lawsuits with no payments made by either party.

Environmental Matters

        Tyco is involved in various stages of investigation and cleanup related to environmental remediation matters at a number of sites. The ultimate cost of site cleanup is difficult to predict given the uncertainties regarding the extent of the required cleanup, the interpretation of applicable laws and regulations and alternative cleanup methods. As of March 29, 2013, Tyco concluded that it was probable that it would incur remedial costs in the range of approximately $107 million to $186 million. As of March 29, 2013, Tyco concluded that the best estimate within this range is approximately $138 million, of which $89 million is included in Accrued and other current liabilities and $49 million is included in Other liabilities in the Company's Consolidated Balance Sheet.

        The majority of the liabilities described above relate to ongoing remediation efforts at a facility in the Company's Global Products segment located in Marinette, Wisconsin, which the Company acquired in 1990 in connection with its acquisition of, among other things, the Ansul product line. Prior to Tyco's acquisition, Ansul manufactured arsenic-based agricultural herbicides at the Marinette facility, which resulted in significant arsenic contamination of soil and groundwater on the Marinette site and in parts of the adjoining Menominee River. Ansul has been engaged in ongoing remediation efforts at the Marinette site since 1990, and in February 2009 entered into an Administrative Consent Order (the "Consent Order") with the U.S. Environmental Protection Agency to address the presence of arsenic at the Marinette site. Under this agreement, Ansul's principal obligations are to contain the arsenic contamination on the site, pump and treat on-site groundwater, dredge, treat and properly dispose of contaminated sediments in the adjoining river areas, and monitor contamination levels on an ongoing basis. Activities completed under the Consent Order since 2009 include the installation of a subsurface barrier wall around the facility to contain contaminated groundwater, the installation of a groundwater extraction and treatment system and the dredging and offsite disposal of treated river sediment. As a result of treatability studies concluded during the second quarter of fiscal 2013, the Company became aware that additional river sediment beyond what was originally planned would require treatment by November 1, 2013, the deadline imposed under the Consent Order for river sediment remediation. This has caused the Company to increase its agreed upon remedial activities through the fall of 2013 in order to achieve compliance with the Consent Order. As a result of the increased level of remediation required, the Company recorded a charge of approximately $94 million during the quarter ended March 29, 2013 which it recorded in Selling, general and administrative expenses in the Consolidated Statement of Operations. As of March 29, 2013, the Company concluded that it was probable that it would incur remediation and monitoring costs related to the Marinette facility in the range of approximately $100 million to $175 million. The Company's best estimate within that range is approximately $131 million, of which $87 million is included in Accrued and other current liabilities and $44 million is included in Other liabilities in the Company's Consolidated Balance Sheet. Since

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11.    Commitments and Contingencies (Continued)

fiscal 2009, the year in which the Company received the Consent Order, the Company has incurred environmental remediation costs net of insurance recoveries of $132 million, of which $16 million were incurred during fiscal 2012. Although the Company has recorded its best estimate of the costs that it will incur to remediate and monitor the arsenic contamination at the Marinette facility, it is possible that technological, regulatory or enforcement developments, the results of environmental studies or other factors could change the Company's expectations with respect to future charges and cash outlays, and such changes could be material to the Company's future results of operations, financial condition or cash flows.

Asbestos Matters

        The Company and certain of its subsidiaries along with numerous other companies are named as defendants in personal injury lawsuits based on alleged exposure to asbestos containing materials. These cases typically involve product liability claims based primarily on allegations of manufacture, sale or distribution of industrial products that either contained asbestos or were attached to or used with asbestos containing components manufactured by third parties. Each case typically names between dozens to hundreds of corporate defendants. While the Company has observed an increase in the number of these lawsuits over the past several years, including lawsuits by plaintiffs with mesothelioma related claims, a large percentage of these suits have not presented viable legal claims and, as a result, have been dismissed by the courts. The Company's historical strategy has been to mount a vigorous defense aimed at having unsubstantiated suits dismissed, and, where appropriate, settling suits before trial. Although a large percentage of litigated suits have been dismissed, the Company cannot predict the extent to which it will be successful in resolving lawsuits in the future. In addition, the Company continues to assess its strategy for resolving asbestos claims. Due to the number of claims and limited amount of assets held by Yarway Corporation ("Yarway"), one of the Company's indirect subsidiaries, on April 22, 2013 Yarway filed a voluntary petition for relief under Chapter 11 of the U.S. Bankruptcy Code in the United States Bankruptcy Court for the District of Delaware. As a result of this filing, all asbestos claims against Yarway have been stayed pending confirmation of a plan of reorganization by the Bankruptcy Court. Yarway's goal is to negotiate, obtain approval of, and consummate a plan of reorganization that establishes an appropriately funded trust to provide for the fair and equitable payment of legitimate current and future Yarway asbestos claims, accompanied by appropriate injunctive relief permanently protecting Yarway and certain other protected parties from any further asbestos claims arising from products manufactured, sold, and/or distributed by Yarway. Although the terms of Yarway's plan of reorganization are unknown at this time, the Company does not expect them to have a material adverse effect on the Company's results of operations, financial condition or liquidity.

        As of March 29, 2013, the Company has determined that there were approximately 5,800 claims pending against it, its subsidiaries or entities for which the Company has assumed responsibility in connection with acquisitions and divestitures. This amount reflects the Company's current estimate of the number of viable claims made against such entities and includes adjustments for claims that are not actively being prosecuted, identify incorrect defendants, are duplicative of other actions or for which the Company is indemnified.

        Annually, during the Company's third quarter, the Company performs an analysis with the assistance of outside counsel and other experts to update its estimated asbestos related assets and liabilities. In addition, on a quarterly basis, the Company re-evaluates the assumptions used to perform

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11.    Commitments and Contingencies (Continued)

the annual analysis and records an expense as necessary to reflect changes in its estimated liability and related insurance asset. The Company's estimate of the liability and corresponding insurance recovery for pending and future claims and defense costs is based on the Company's historical claim experience, and estimates of the number and resolution cost of potential future claims that may be filed. The Company's legal strategy for resolving claims also impacts these estimates. The Company considers various trends and developments in evaluating the period of time (the look-back period) over which historical claim and settlement experience is used to estimate and value claims reasonably projected to be made in the future during a defined period of time (the look-forward period). As part of the Company's annual valuation process in the third quarter of fiscal 2012, the Company determined that a look-back period of three years was more appropriate than a five year period because the Company has experienced a higher and more consistent level of claims activity and settlement costs in the past three years. As a result, the Company believes a three year look-back period is more representative of future claim and settlement activity than the five year period it previously used. The Company also revised its look-forward period from seven years to fifteen years. The Company's decision to revise its look- forward period was primarily based on improvements in the consistency of observable data and the Company's more extensive experience with asbestos claims since the look-forward period was originally established in 2005. The revisions to the Company's look-forward and look-back periods do not apply to claims made against Yarway. Excluding these claims, the Company believes it can make a more reliable estimate of pending and future claims beyond seven years. The Company believes valuation of pending claims and future claims to be filed over the next fifteen years produces a reasonable estimate of its asbestos liability, which it records in the unaudited consolidated financial statements on an undiscounted basis.

        The Company's estimate of asbestos related insurance recoveries represents estimated amounts due to the Company for previously paid and settled claims and the probable reimbursements relating to its estimated liability for pending and future claims. In determining the amount of insurance recoverable, the Company considers a number of factors, including available insurance, allocation methodologies, and the solvency and creditworthiness of insurers. During the fourth quarter of fiscal 2012, the Company reached an agreement with one of its primary insurance carriers for asbestos related claims. Under the terms of the settlement, the Company agreed with the insurance carrier to accept a lump sum cash payment of $97 million in respect of certain policies, and has reached a coverage-in-place agreement with the insurance carrier with respect to certain claims. Upon receipt of the payments from the insurance carrier in the first quarter of fiscal 2013, the Company terminated a cost-sharing agreement that it had entered into with an entity that it had acquired a business from several decades ago and as a result, has access to all of the insurance policies and is responsible for all liabilities arising from asbestos claims made against the subsidiary that was acquired.

        As of March 29, 2013, the Company's estimated net liability of $203 million was recorded within the Company's Consolidated Balance Sheet as a liability for pending and future claims and related defense costs of $355 million, and separately as an asset for insurance recoveries of $152 million. The Company believes that its asbestos related liabilities and insurance related assets as of March 29, 2013 are appropriate. Similarly, as of September 28, 2012, the Company's estimated net liability of $155 million was recorded within the Company's Consolidated Balance Sheet as a liability for pending and future claims and related defense costs of $401 million, and separately as an asset for insurance recoveries of $246 million.

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11.    Commitments and Contingencies (Continued)

        The net liabilities reflected in the Company's Consolidated Balance Sheet represent the Company's best estimates of probable losses for the look-forward periods described above. It is reasonably possible that losses will be incurred for claims made subsequent to such look-forward periods. However, due to the inherent uncertainty and lack of reliable trend data in predicting losses beyond 2027, the Company is unable to reasonably estimate the amount of losses beyond such date. With respect to claims made against Yarway, the Company is unable to reasonably estimate losses beyond what it has accrued because it is uncertain what the impact of Yarway's reorganization plan under Chapter 11 of the Bankruptcy Code will be on the Company. However, the Company does not expect the impact to be materially adverse to its financial condition, results of operations or liquidity.

        The amounts recorded by the Company for asbestos-related liabilities and insurance-related assets are based on the Company's strategies for resolving its asbestos claims, currently available information, and a number of estimates and assumptions. Key variables and assumptions include the number and type of new claims that are filed each year, the average cost of resolution of claims, the resolution of coverage issues with insurance carriers, amount of insurance and the solvency risk with respect to the Company's insurance carriers. Many of these factors are closely linked, such that a change in one variable or assumption will impact one or more of the others, and no single variable or assumption predominately influences the determination of the Company's asbestos-related liabilities and insurance-related assets. Furthermore, predictions with respect to these variables are subject to greater uncertainty in the later portion of the projection period. Other factors that may affect the Company's liability and cash payments for asbestos-related matters include uncertainties surrounding the litigation process from jurisdiction to jurisdiction and from case to case, reforms of state or federal tort legislation and the applicability of insurance policies among subsidiaries. As a result, actual liabilities or insurance recoveries could be significantly higher or lower than those recorded if assumptions used in the Company's calculations vary significantly from actual results.

Compliance Matters

        As previously reported in the Company's periodic filings, in the fourth fiscal quarter of 2012, the Company settled with the Department of Justice ("DOJ") and the SEC charges related to alleged improper payments made by the Company's subsidiaries and agents in recent years, and agreed to pay approximately $26 million in fines, disgorgement and prejudgment interest to the DOJ and SEC, which the Company had previously reserved in the fourth quarter of fiscal 2011. The Company paid the DOJ approximately $13 million in the first quarter of fiscal 2013 and expects to make the payment of approximately $13 million to the SEC in the second half of fiscal 2013.

        Covidien and TE Connectivity agreed, in connection with the 2007 Separation, to cooperate with the Company in its responses regarding these matters, and agreed that liabilities primarily related to the former Healthcare and Electronics businesses of the Company would be assigned to Covidien and TE Connectivity, respectively. As a result, Covidien and TE Connectivity have agreed to contribute approximately $5 million and immaterial amounts, respectively, toward the aforementioned $26 million.

Tax Litigation

        Tyco and its subsidiaries' income tax returns are examined periodically by various tax authorities. In connection with these examinations, tax authorities, including the IRS, have raised issues and proposed tax adjustments, in particular with respect to years preceding the 2007 Separation. The issues

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11.    Commitments and Contingencies (Continued)

and proposed adjustments related to such years are generally subject to the sharing provisions of a tax sharing agreement entered in 2007 with Covidien and TE Connectivity (the "2007 Tax Sharing Agreement") under which Tyco, Covidien and TE Connectivity share 27%, 42% and 31%, respectively, of shared income tax liabilities that arise from adjustments made by tax authorities to Tyco's, Covidien's and TE Connectivity's U.S. and certain non-U.S. income tax returns. The costs and expenses associated with the management of these shared tax liabilities are generally shared equally among the parties. Tyco is reviewing and contesting certain tax adjustments proposed by tax authorities. With respect to adjustments raised by the IRS, although the Company has resolved a substantial number of these adjustments, a few significant items are expected to remain open with respect to the audit of the 1997 through 2004 years. As of the date hereof, it is unlikely that Tyco will be able to resolve all the open items, which primarily involve the treatment of certain intercompany debt transactions during the period, through the IRS appeals process. As a result, Tyco expects to litigate these matters once it receives the requisite statutory notices from the IRS, which is expected to occur during fiscal 2013. The Company has assessed its obligations under the 2007 Tax Sharing Agreement and determined that its recorded liability is sufficient to cover the indemnifications made by the Company under such agreement. However, the ultimate resolution of these matters is uncertain and could result in a material adverse impact to the Company's financial position, results of operations, cash flows or the effective tax rate in future reporting periods. See Note 6 for additional information related to income tax matters.

Other Matters

        In addition to the foregoing, the Company is subject to claims and suits, including from time to time, contractual disputes and product and general liability claims, incidental to present and former operations, acquisitions and dispositions. With respect to many of these claims, the Company either self-insures or maintains insurance through third-parties, with varying deductibles. While the ultimate outcome of these matters cannot be predicted with certainty, the Company believes that the resolution of any such proceedings, whether the underlying claims are covered by insurance or not, will not have a material adverse effect on the Company's financial condition, results of operations or cash flows beyond amounts recorded for such matters.

12.    Retirement Plans

        Defined Benefit Pension Plans—The Company sponsors a number of pension plans. The following disclosures exclude the impact of plans which are immaterial individually and in the aggregate. The net

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12.    Retirement Plans (Continued)

periodic benefit cost for the Company's material U.S. and non-U.S. defined benefit pension plans is as follows ($ in millions):

 
  U.S. Plans  
 
  For the
Quarters Ended
  For the
Six Months Ended
 
 
  March 29,
2013
  March 30,
2012
  March 29,
2013
  March 30,
2012
 

Service cost

  $ 2   $ 1   $ 3   $ 2  

Interest cost

    8     9     16     18  

Expected return on plan assets

    (12 )   (11 )   (24 )   (21 )

Amortization of net actuarial loss

    3     3     7     6  
                   

Net periodic benefit cost

  $ 1   $ 2   $ 2   $ 5  
                   

 

 
  Non-U.S. Plans  
 
  For the
Quarters Ended
  For the
Six Months Ended
 
 
  March 29,
2013
  March 30,
2012
  March 29,
2013
  March 30,
2012
 

Service cost

  $ 4   $ 4   $ 9   $ 7  

Interest cost

    13     13     26     27  

Expected return on plan assets

    (18 )   (15 )   (34 )   (30 )

Amortization of net actuarial loss

    4     3     6     5  
                   

Net periodic benefit cost

  $ 3   $ 5   $ 7   $ 9  
                   

        The estimated net actuarial loss for U.S. pension benefit plans that will be amortized from accumulated other comprehensive loss into net periodic benefit cost over the current fiscal year is expected to be $14 million. The estimated net actuarial loss for non-U.S. pension benefit plans that will be amortized from accumulated other comprehensive income into net periodic benefit cost over the current fiscal year is expected to be $12 million.

        The Company's funding policy is to make contributions in accordance with the laws and customs of the various countries in which it operates and to make discretionary voluntary contributions from time-to-time. The Company anticipates that it will contribute at least the minimum required to its pension plans in fiscal year 2013 of $11 million for U.S. plans and $50 million for non-U.S. plans. During the quarter ended March 29, 2013, the Company made required contributions of $1 million to its U.S. pension plans and $13 million to its non-U.S. pension plans. During the six months ended March 29, 2013, the Company made required contributions of $2 million to its U.S. pension plans and $26 million to its non-U.S. pension plans.

        Postretirement Benefit Plans—Net periodic postretirement benefit cost was insignificant for both periods.

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13.    Share Plans

        During the quarter ended December 28, 2012, the Company issued its annual share-based compensation grants. The total number of awards issued was approximately 4.2 million, of which 2.6 million were stock options, 0.7 million were restricted unit awards and 0.9 million were performance share unit awards. The options and restricted stock units vest in equal annual installments over a period of 4 years, and the performance share unit awards vest after a period of 3 years based on the level of attainment of the applicable performance metrics, which are determined by the Compensation and Human Resources Committee of the Board. The weighted-average grant-date fair value of the stock options, restricted unit awards and performance share unit awards was $7.16, $27.14 and $30.36, respectively. The weighted-average assumptions used in the Black-Scholes option pricing model included an expected stock price volatility of 35%, a risk free interest rate of 0.86%, an expected annual dividend per share of $0.60 and an expected option life of 5.7 years.

        In addition to the annual grant and in connection with the Separation, the Compensation and Human Resources Committee of the Board awarded as a one-time event Leadership Grants to selected employees in order to strengthen the alignment of the new senior management team with the shareholders of the post-Separation Company and to enhance employee retention. The total number of leadership awards issued was approximately 1.9 million, of which 1.5 million were stock options and 0.4 million were restricted unit awards. The options vest after a period of 3 years and restricted stock units vest in equal installments on the third and fourth anniversary of the grant date. The weighted-average grant-date fair value of the stock options and restricted unit awards was $7.20 and $27.14, respectively. The weighted-average assumptions used in the Black-Scholes option pricing model included an expected stock price volatility of 35%, a risk free interest rate of 0.87%, an expected annual dividend per share of $0.60 and an expected option life of 5.8 years.

14.    Equity and Comprehensive Income

Dividends

        Under Swiss law, the authority to declare dividends is vested in the general meeting of shareholders, and on March 6, 2013, the Company's shareholders approved a cash dividend of $0.64 per share, payable to shareholders in four quarterly installments of $0.16 in May 2013, August 2013, November 2013 and February 2014. As a result, during the quarter ended March 29, 2013, the Company recorded an accrued dividend of $296 million within Accrued and other current liabilities and a corresponding reduction to Contributed surplus on the Company's Consolidated Balance Sheet.

        On September 17, 2012, the Company's shareholders approved a $0.30 per share dividend, payable to shareholders in two quarterly installments of $0.15. As a result, the Company recorded an accrued dividend of $139 million as of September 17, 2012 within Accrued and other current liabilities and a corresponding reduction to Contributed surplus on the Company's Consolidated Balance Sheet. The first installment of $0.15 was paid on November 15, 2012 to shareholders of record on October 16, 2012. The second installment of $0.15 was paid on February 20, 2013 to shareholders of record on January 25, 2013.

Share Repurchase Program

        On January 29, 2013, the Company announced that its Board of Directors approved $600 million in share repurchase authority ("2013 Share Repurchase Program") in addition to the $1.0 billion share repurchase program that its Board of Directors approved in April 2011 ("2011 Share Repurchase

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14.    Equity and Comprehensive Income (Continued)

Program"). During the six months ended March 29, 2013, the Company repurchased approximately 7 million shares for approximately $200 million. As of March 29, 2013, the Company completed the 2011 Share Repurchase Program and approximately $600 million of share repurchase authority remained outstanding under the 2013 Share Repurchase Program.

Common Shares

        On March 6, 2013, shareholders of the Company approved a reduction of the Company's registered share capital from CHF 3,258,632,435 to CHF 243,181,525 by reducing the par value of each share from CHF 6.70 to CHF 0.50 per share and correspondingly increasing the Company's contributed surplus by CHF 3,015,450,910. The reduction in registered share capital and corresponding increase in contributed surplus is intended to provide the Company with more flexibility in making distributions to shareholders. In accordance with Swiss law, the reduction of share capital will only be accomplished after publication of the notice to creditors and the resulting two-month period for filing claims has expired and all claims filed have been satisfied or secured. As a result, the reduction in registered share capital and corresponding increase in contributed surplus, which will not result in a change to total Shareholders' Equity, is expected to occur no earlier than May 12, 2013.

Comprehensive Income

 
  For the
Quarters Ended
  For the
Six Months Ended
 
 
  March 29,
2013
  March 30,
2012
  March 29,
2013
  March 30,
2012
 

Net income

  $ 70   $ 323   $ 235   $ 645  

Foreign currency translation

    (102 )   198     (74 )   120  

Liquidation of foreign entities

            (10 )    

Income tax expense

            (7 )   (1 )
                   

Foreign currency translation, net of tax

    (102 )   198     (91 )   119  
                   

Amortization of net actuarial losses

    7     5     13     11  

Income tax expense

    (2 )   (2 )   (4 )   (4 )
                   

Defined benefit and post retirement plan, net of tax

    5     3     9     7  
                   

Unrealized (loss) on marketable securities and derivative instruments

        (1 )   (1 )   (1 )

Income tax benefit

        1     2     3  
                   

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

            1     2  
                   

Total other comprehensive (loss) income, net of tax

    (97 )   201     (81 )   128  
                   

Comprehensive (loss) income

    (27 )   524     154     773  

Less: comprehensive (loss) income attributable to noncontrolling interests

    (2 )            
                   

Comprehensive (loss) income attributable to Tyco common shareholders

  $ (25 ) $ 524   $ 154   $ 773  
                   

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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

15.    Consolidated Segment Data

        Segment information is consistent with how management reviews the businesses, makes investing and resource allocation decisions and assesses operating performance. The Company, from time to time, may realign business and management responsibility within its operating segments based on considerations such as opportunity for market or operating synergies and/or to more fully leverage existing capabilities and enhance development for future products and services.

        In connection with the 2012 Separation, the Company has realigned its management and segment reporting structure beginning in the fourth quarter of fiscal 2012. The Company operates and reports financial and operating information in the following three segments:

    NA Installation & Services designs, sells, installs, services and monitors electronic security systems and fire detection and suppression systems for commercial, industrial, retail, institutional and governmental customers in North America.

    ROW Installation & Services designs, sells, installs, services and monitors electronic security systems and fire detection and suppression systems for commercial, industrial, retail, residential, small business, institutional and governmental customers in the Rest of World ("ROW") regions.

    Global Products designs, manufactures and sells fire protection, security and life safety products, including intrusion security, anti-theft devices, breathing apparatus and access control and video management systems, for commercial, industrial, retail, residential, small business, institutional and governmental customers worldwide, including products installed and serviced by our NA and ROW Installation & Services segments.

        The Company also provides general corporate services to its segments which is reported as a fourth, non-operating segment, Corporate and Other.

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15.    Consolidated Segment Data (Continued)

        As a result of the 2012 Separation, net revenue and operating income for the quarter and six months ended March 30, 2012 have been recast for the new segment structure. Selected information by segment is presented in the following tables ($ in millions):

 
  For the
Quarters Ended
  For the
Six Months Ended
 
 
  March 29,
2013
  March 30,
2012
  March 29,
2013
  March 30,
2012
 

Net revenue(1):

                         

NA Installation & Services

  $ 953   $ 953   $ 1,929   $ 1,915  

ROW Installation & Services

    1,077     1,070     2,167     2,126  

Global Products

    578     519     1,112     979  
                   

Net revenue

  $ 2,608   $ 2,542   $ 5,208   $ 5,020  
                   

(1)
Net revenue by operating segment excludes intercompany transactions.

 
  For the
Quarters Ended
  For the
Six Months Ended
 
 
  March 29,
2013
  March 30,
2012
  March 29,
2013
  March 30,
2012
 

Operating income (loss):

                         

NA Installation & Services

  $ 79   $ 85   $ 187   $ 171  

ROW Installation & Services

    106     105     220     215  

Global Products

        86     74     167  

Corporate and Other

    (62 )   (48 )   (123 )   (139 )
                   

Operating income

  $ 123   $ 228   $ 358   $ 414  
                   

16.    Inventory

        Inventories consisted of the following ($ in millions):

 
  As of  
 
  March 29,
2013
  September 28,
2012
 

Purchased materials and manufactured parts

  $ 148   $ 135  

Work in process

    72     80  

Finished goods

    434     419  
           

Inventories

  $ 654   $ 634  
           

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

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17.    Property, Plant and Equipment

        Property, plant and equipment consisted of the following ($ in millions):

 
  As of  
 
  March 29,
2013
  September 28,
2012
 

Land

  $ 43   $ 44  

Buildings

    371     358  

Subscriber systems

    3,031     3,063  

Machinery and equipment

    1,189     1,158  

Construction in progress

    92     102  

Accumulated depreciation

    (3,058 )   (3,055 )
           

Property, Plant and Equipment, net

  $ 1,668   $ 1,670  
           

18.    Guarantees

        Certain of the Company's business segments have guaranteed the performance of third-parties and provided financial guarantees for uncompleted work and financial commitments. The terms of these guarantees vary with end dates ranging from the current fiscal year through the completion of such transactions. The guarantees would typically be triggered in the event of nonperformance and performance under the guarantees, if required, would not have a material effect on the Company's financial position, results of operations or cash flows.

        There are certain guarantees or indemnifications extended among Tyco, Covidien, TE Connectivity, ADT and Pentair in accordance with the terms of the 2007 and 2012 Separation and Distribution Agreements and Tax Sharing Agreements. These guarantees primarily relate to certain contingent tax liabilities included in the Tax Sharing Agreements. See Note 6.

        In addition, Tyco historically provided support in the form of financial and/or performance guarantees to various Covidien, TE Connectivity, ADT and Tyco Flow Control operating entities. In connection with both the 2012 and 2007 Separations, the Company worked with the guarantee counterparties to cancel or assign these guarantees to Covidien, TE Connectivity, ADT or Pentair, as appropriate. To the extent these guarantees were not assigned prior to the Separation dates, Tyco remained as the guarantor, but was typically indemnified by the former subsidiary. The Company's obligations related to the 2012 Separation were $3 million, which were included in Other liabilities on the Company's Consolidated Balance Sheet as of both March 29, 2013 and September 28, 2012, with an offset to Tyco's shareholders' equity on the 2012 Separation date. The Company's obligations related to the 2007 Separation were $3 million, which were included in Other liabilities on the Company's Consolidated Balance Sheets as of both March 29, 2013 and September 28, 2012, with an offset to Tyco's shareholders' equity on the 2007 Separation date.

        In disposing of assets or businesses, the Company often provides representations, warranties and/or indemnities to cover various risks including, for example, unknown damage to the assets, environmental risks involved in the sale of real estate, liability to investigate and remediate environmental contamination at waste disposal sites and manufacturing facilities and unidentified tax liabilities and legal fees related to periods prior to disposition. The Company has no reason to believe that these contingencies, if realized, would have a material adverse effect on the Company's financial position,

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TYCO INTERNATIONAL LTD.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

18.    Guarantees (Continued)

results of operations or cash flows. The Company has recorded liabilities for known indemnifications included as part of environmental liabilities. See Note 11.

        In the normal course of business, the Company is liable for contract completion and product performance. In the opinion of management, such obligations will not significantly affect the Company's financial position, results of operations or cash flows.

Balance as of September 28, 2012

  $ 30  

Warranties issued

    7  

Changes in estimates

    (2 )

Settlements

    (6 )
       

Balance as of March 29, 2013

  $ 29  
       

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TYCO INTERNATIONAL LTD.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

19.    Tyco International Finance S.A.

        TIFSA, a wholly-owned subsidiary of the Company, has public debt securities outstanding which are fully and unconditionally guaranteed by Tyco. The following tables present condensed consolidating financial information for Tyco, TIFSA and all other subsidiaries. Condensed financial information for Tyco and TIFSA on a stand-alone basis is presented using the equity method of accounting for subsidiaries.

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

For the Quarter Ended March 29, 2013

($ in millions)

 
  Tyco
International
Ltd.
  Tyco
International
Finance S.A.
  Other
Subsidiaries
  Consolidating
Adjustments
  Total  

Net revenue

  $   $   $ 2,608   $   $ 2,608  

Cost of product sales and services

            1,673         1,673  

Selling, general and administrative expenses

    2         788         790  

Separation costs

    1         (1 )        

Restructuring and asset impairment charges, net

            22         22  
                       

Operating (loss) income

    (3 )       126         123  

Interest income

            4         4  

Interest expense

        (23 )   (2 )       (25 )

Other expense, net

    (20 )               (20 )

Equity in net income of subsidiaries

    262     205         (467 )    

Intercompany interest and fees

    (167 )   48     119          
                       

Income from continuing operations before income taxes

    72     230     247     (467 )   82  

Income tax expense

            (4 )       (4 )

Equity loss in earnings of unconsolidated subsidiaries

            (6 )       (6 )
                       

Income from continuing operations

    72     230     237     (467 )   72  

Loss from discontinued operations, net of income taxes

            (2 )       (2 )
                       

Net income

    72     230     235     (467 )   70  

Less: noncontrolling interest in subsidiaries net loss

            (2 )       (2 )
                       

Net income attributable to Tyco common shareholders

  $ 72   $ 230   $ 237   $ (467 ) $ 72  
                       

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TYCO INTERNATIONAL LTD.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

19.    Tyco International Finance S.A. (Continued)

CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME

For the Quarter Ended March 29, 2013

(in millions)

 
  Tyco
International
Ltd.
  Tyco
International
Finance S.A.
  Other
Subsidiaries
  Consolidating
Adjustments
  Total  

Net income

  $ 72   $ 230   $ 235   $ (467 ) $ 70  
                       

Other comprehensive (loss) income, net of tax

                               

Foreign currency translation

    (102 )       (102 )   102     (102 )

Defined benefit and post retirement plans

    5         5     (5 )   5  
                       

Total other comprehensive loss, net of tax

    (97 )       (97 )   97     (97 )
                       

Comprehensive (loss) income

    (25 )   230     138     (370 )   (27 )

Less: comprehensive loss attributable to noncontrolling interests

            (2 )       (2 )
                       

Comprehensive (loss) income attributable to Tyco common shareholders

  $ (25 ) $ 230   $ 140   $ (370 ) $ (25 )
                       

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TYCO INTERNATIONAL LTD.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

19.    Tyco International Finance S.A. (Continued)

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

For the Quarter Ended March 30, 2012

($ in millions)

 
  Tyco
International
Ltd.
  Tyco
International
Finance S.A.
  Other
Subsidiaries
  Consolidating
Adjustments
  Total  

Net revenue

  $   $   $ 2,542   $   $ 2,542  

Cost of product sales and services

            1,634         1,634  

Selling, general and administrative expenses

    3     (1 )   658         660  

Separation costs

            4         4  

Restructuring and asset impairment charges, net

            16         16  
                       

Operating (loss) income

    (3 )   1     230         228  

Interest income

            4         4  

Interest expense

        (59 )           (59 )

Other (expense) income, net

    (5 )       1         (4 )

Equity in net income of subsidiaries

    451     311         (762 )    

Intercompany interest and fees

    (129 )   88     48     (7 )    
                       

Income from continuing operations before income taxes

    314     341     283     (769 )   169  

Income tax benefit (expense)

    1     (7 )   (27 )       (33 )

Equity loss in earnings of unconsolidated subsidiaries

            (2 )       (2 )
                       

Income from continuing operations

    315     334     254     (769 )   134  

Income from discontinued operations, net of income taxes

    8         174     7     189  
                       

Net income

    323     334     428     (762 )   323  

Less: noncontrolling interest in subsidiaries net income

                     
                       

Net income attributable to Tyco common shareholders

  $ 323   $ 334   $ 428   $ (762 ) $ 323  
                       

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TYCO INTERNATIONAL LTD.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

19.    Tyco International Finance S.A. (Continued)

CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME

For the Quarter Ended March 30, 2012

(in millions)

 
  Tyco
International
Ltd.
  Tyco
International
Finance S.A.
  Other
Subsidiaries
  Consolidating
Adjustments
  Total  

Net income

  $ 323   $ 334   $ 428   $ (762 ) $ 323  
                       

Other comprehensive income, net of tax

                               

Foreign currency translation

    198     3     195     (198 )   198  

Defined benefit and post retirement plans

    3         3     (3 )   3  
                       

Total other comprehensive income, net of tax

    201     3     198     (201 )   201  
                       

Comprehensive income

    524     337     626     (963 )   524  

Less: comprehensive income attributable to noncontrolling interests

                     
                       

Comprehensive income attributable to Tyco common shareholders

  $ 524   $ 337   $ 626   $ (963 ) $ 524  
                       

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TYCO INTERNATIONAL LTD.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

19.    Tyco International Finance S.A. (Continued)

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

For the Six Months Ended March 29, 2013

($ in millions)

 
  Tyco
International
Ltd.
  Tyco
International
Finance S.A.
  Other
Subsidiaries
  Consolidating
Adjustments
  Total  

Net revenue

  $   $   $ 5,208   $   $ 5,208  

Cost of product sales and services

            3,341         3,341  

Selling, general and administrative expenses

    7     1     1,464         1,472  

Separation costs

    4         1         5  

Restructuring and asset impairment charges, net

            32         32  
                       

Operating (loss) income

    (11 )   (1 )   370         358  

Interest income

            8         8  

Interest expense

        (47 )   (2 )       (49 )

Other (expense) income, net

    (30 )       1         (29 )

Equity in net income of subsidiaries

    465     273         (738 )    

Intercompany interest and fees

    (189 )   97     92          
                       

Income from continuing operations before income taxes

    235     322     469     (738 )   288  

Income tax expense

            (43 )       (43 )

Equity loss in earnings of unconsolidated subsidiaries

            (12 )       (12 )
                       

Income from continuing operations

    235     322     414     (738 )   233  

Income from discontinued operations, net of income taxes

            2         2  
                       

Net income

    235     322     416     (738 )   235  

Less: noncontrolling interest in subsidiaries net income

                     
                       

Net income attributable to Tyco common shareholders

  $ 235   $ 322   $ 416   $ (738 ) $ 235  
                       

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TYCO INTERNATIONAL LTD.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

19.    Tyco International Finance S.A. (Continued)


CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME

For the Six Months Ended March 29, 2013

(in millions)

 
  Tyco
International
Ltd.
  Tyco
International
Finance S.A.
  Other
Subsidiaries
  Consolidating
Adjustments
  Total  

Net income

  $ 235   $ 322   $ 416   $ (738 ) $ 235  
                       

Other comprehensive (loss) income, net of tax

                               

Foreign currency translation

    (91 )       (91 )   91     (91 )

Defined benefit and post retirement plans

    9         9     (9 )   9  

Unrealized gain on marketable securities and derivative instruments

    1         1     (1 )   1  
                       

Total other comprehensive loss, net of tax

    (81 )       (81 )   81     (81 )
                       

Comprehensive income

    154     322     335     (657 )   154  

Less: comprehensive income attributable to noncontrolling interests

                     
                       

Comprehensive income attributable to Tyco common shareholders

  $ 154   $ 322   $ 335   $ (657 ) $ 154  
                       

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TYCO INTERNATIONAL LTD.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

19.    Tyco International Finance S.A. (Continued)

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

For the Six Months Ended March 30, 2012

($ in millions)

 
  Tyco
International
Ltd.
  Tyco
International
Finance S.A.
  Other
Subsidiaries
  Consolidating
Adjustments
  Total  

Net revenue

  $   $   $ 5,020   $   $ 5,020  

Cost of product sales and services

            3,213         3,213  

Selling, general and administrative expenses

    7     2     1,328         1,337  

Separation costs

            4         4  

Restructuring and asset impairment charges, net

    1         51         52  
                       

Operating (loss) income

    (8 )   (2 )   424         414  

Interest income

            9         9  

Interest expense

        (116 )   (1 )       (117 )

Other (expense) income, net

    (4 )       2         (2 )

Equity in net income of subsidiaries

    895     530         (1,425 )    

Intercompany interest and fees

    (247 )   175     87     (15 )    
                       

Income from continuing operations before income taxes

    636     587     521     (1,440 )   304  

Income tax benefit (expense)

    1     (14 )   (47 )       (60 )

Equity loss in earnings of unconsolidated subsidiaries

            (12 )       (12 )
                       

Income from continuing operations

    637     573     462     (1,440 )   232  

Income from discontinued operations, net of income taxes

    8         390     15     413  
                       

Net income

    645     573     852     (1,425 )   645  

Less: noncontrolling interest in subsidiaries net income

                     
                       

Net income attributable to Tyco common shareholders

  $ 645   $ 573   $ 852   $ (1,425 ) $ 645  
                       

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TYCO INTERNATIONAL LTD.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

19.    Tyco International Finance S.A. (Continued)


CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME

For the Six Months Ended March 30, 2012

(in millions)

 
  Tyco
International
Ltd.
  Tyco
International
Finance S.A.
  Other
Subsidiaries
  Consolidating
Adjustments
  Total  

Net income

  $ 645   $ 573   $ 852   $ (1,425 ) $ 645  
                       

Other comprehensive income (loss), net of tax

                               

Foreign currency translation

    119     (2 )   121     (119 )   119  

Defined benefit and post retirement plans

    7         7     (7 )   7  

Unrealized gain on marketable securities and derivative instruments

    2         2     (2 )   2  
                       

Total other comprehensive income (loss), net of tax

    128     (2 )   130     (128 )   128  
                       

Comprehensive income

    773     571     982     (1,553 )   773  

Less: comprehensive income attributable to noncontrolling interests

                     
                       

Comprehensive income attributable to Tyco common shareholders

  $ 773   $ 571   $ 982   $ (1,553 ) $ 773  
                       

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TYCO INTERNATIONAL LTD.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

19.    Tyco International Finance S.A. (Continued)

CONDENSED CONSOLIDATING BALANCE SHEET

As of March 29, 2013

($ in millions)

 
  Tyco
International
Ltd.
  Tyco
International
Finance S.A.
  Other
Subsidiaries
  Consolidating
Adjustments
  Total  

Assets

                               

Current Assets:

                               

Cash and cash equivalents

  $   $   $ 430   $   $ 430  

Accounts receivable, net

            1,649         1,649  

Inventories

            654         654  

Intercompany receivables

    1,272     2,014     8,748     (12,034 )    

Prepaid expenses and other current assets

    11         919         930  

Deferred income taxes

            295         295  
                       

Total current assets

    1,283     2,014     12,695     (12,034 )   3,958  

Property, plant and equipment, net

            1,668         1,668  

Goodwill

            4,345         4,345  

Intangible assets, net

            735         735  

Investment in subsidiaries

    25,927     12,656         (38,583 )    

Intercompany loans receivable

    1,921     5,250     19,971     (27,142 )    

Other assets

    71     7     1,174         1,252  
                       

Total Assets

  $ 29,202   $ 19,927   $ 40,588   $ (77,759 ) $ 11,958  
                       

Liabilities and Equity

                               

Current Liabilities:

                               

Loans payable and current maturities of long-term debt

  $   $   $ 11   $   $ 11  

Accounts payable

            783         783  

Accrued and other current liabilities

    332     23     1,402         1,757  

Deferred revenue

            418         418  

Intercompany payables

    3,667     5,090     3,277     (12,034 )    
                       

Total current liabilities

    3,999     5,113     5,891     (12,034 )   2,969  

Long-term debt

        1,443     38         1,481  

Intercompany loans payable

    19,987     3,069     4,086     (27,142 )    

Deferred revenue

            405         405  

Other liabilities

    502         1,859         2,361  
                       

Total Liabilities

    24,488     9,625     12,279     (39,176 )   7,216  
                       

Redeemable noncontrolling interest

            12         12  
                       

Tyco Shareholders' Equity:

                               

Common shares

    2,792                 2,792  

Common shares held in treasury

            (967 )       (967 )

Other shareholders' equity

    1,922     10,302     29,248     (38,583 )   2,889  
                       

Total Tyco Shareholders' Equity

    4,714     10,302     28,281     (38,583 )   4,714  

Nonredeemable noncontrolling interest

            16         16  
                       

Total Equity

    4,714     10,302     28,297     (38,583 )   4,730  
                       

Total Liabilities, Redeemable Noncontrolling Interest and Equity

  $ 29,202   $ 19,927   $ 40,588   $ (77,759 ) $ 11,958  
                       

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TYCO INTERNATIONAL LTD.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

19.    Tyco International Finance S.A. (Continued)


CONDENSED CONSOLIDATING BALANCE SHEET

As of September 28, 2012

($ in millions)

 
  Tyco
International
Ltd.
  Tyco
International
Finance S.A.
  Other
Subsidiaries
  Consolidating
Adjustments
  Total  

Assets