Johnson Controls International plc - FORM 10-Q - July 29, 2016

Attached files

file filename
EX-32.1 - EXHIBIT 32.1 - Johnson Controls International plctyc-2016624xex321.htm
EX-31.2 - EXHIBIT 31.2 - Johnson Controls International plctyc-2016624xex312.htm
EX-31.1 - EXHIBIT 31.1 - Johnson Controls International plctyc-2016624xex311.htm
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________________________________________
FORM 10-Q
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 24, 2016
or
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
333-196049
(Commission File Number)
___________________________________________________________
TYCO INTERNATIONAL PLC
(Exact name of Registrant as specified in its charter)
Ireland
(Jurisdiction of Incorporation)
 
98-0390500
(I.R.S. Employer Identification Number)
1 Albert Quay,
Albert Quay, Cork, Ireland
(Address of registrant's principal executive office)
353-21-426-0000
(Registrant's telephone number)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes ý    No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes ý    No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of "large accelerated filer," "accelerated filer," and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer ý
 
Accelerated filer o
 
Non-accelerated filer o
 (Do not check if a smaller
reporting company)
 
Smaller reporting company o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes o    No ý
The number of ordinary shares outstanding as of July 22, 2016 was 426,224,367.
 


TYCO INTERNATIONAL PLC
INDEX TO FORM 10-Q

 
 
 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

2

PART I. FINANCIAL INFORMATION
Item 1.    Financial Statements
  TYCO INTERNATIONAL PLC
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(in millions, except per share data)
 
For the Quarters Ended
 
For the Nine Months Ended
 
June 24,
2016
 
June 26,
2015
 
June 24,
2016
 
June 26,
2015
Revenue from product sales
$
1,487

 
$
1,511

 
$
4,293

 
$
4,457

Service revenue
962

 
978

 
2,863

 
2,940

Net revenue
2,449

 
2,489

 
7,156

 
7,397

Cost of product sales
1,026

 
1,025

 
2,956

 
3,046

Cost of services
508

 
548

 
1,550

 
1,645

Selling, general and administrative expenses
667

 
625

 
1,842

 
1,925

Merger costs (see Note 2)
7

 
—

 
33

 
—

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

 
38

 
21

 
108

Operating income
236

 
253

 
754

 
673

Interest income
3

 
4

 
11

 
11

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

 
6

 
(111
)
 
9

Income from continuing operations before income taxes
271

 
237

 
586

 
618

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

 
188

 
456

 
532

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

 
(50
)
Net income
238

 
156

 
459

 
482

Less: noncontrolling interest in subsidiaries net loss
(1
)
 
—

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

 
$
156

 
$
461

 
$
485

Amounts attributable to Tyco ordinary shareholders:
 

 
 

 
 
 
 
Income from continuing operations
$
241

 
$
188

 
$
458

 
$
535

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

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

 
$
156

 
$
461

 
$
485

Basic earnings per share attributable to Tyco ordinary shareholders:
 

 
 

 
 
 
 
Income from continuing operations
$
0.57

 
$
0.45

 
$
1.08

 
$
1.27

Loss from discontinued operations
(0.01
)
 
(0.08
)
 
—

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

 
$
0.37

 
$
1.08

 
$
1.15

Diluted earnings per share attributable to Tyco ordinary shareholders:
 

 
 

 
 
 
 
Income from continuing operations
$
0.56

 
$
0.44

 
$
1.07

 
$
1.25

(Loss) income from discontinued operations
—

 
(0.07
)
 
0.01

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

 
$
0.37

 
$
1.08

 
$
1.14

Weighted average number of shares outstanding:
 

 
 

 
 
 
 
Basic
426

 
421

 
425

 
421

Diluted
429

 
427

 
428

 
427

   

See Notes to Unaudited Consolidated Financial Statements.

3

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

 
$
156

 
$
459

 
$
482

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

 
28

 
7

 
(346
)
Defined benefit and post retirement plans
5

 
4

 
13

 
13

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

 
(4
)
 
6

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

 
28

 
26

 
(337
)
Comprehensive income
252

 
184

 
485

 
145

Less: comprehensive loss attributable to noncontrolling interests
(1
)
 
—

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

 
$
184

 
$
487

 
$
148

   See Notes to Unaudited Consolidated Financial Statements.

4

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

 
$
1,401

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

 
1,722

Inventories
656

 
620

Prepaid expenses and other current assets
883

 
750

Deferred income taxes
62

 
62

Assets held for sale
71

 
208

Total Current Assets
3,822

 
4,763

Property, plant and equipment, net
1,180

 
1,166

Goodwill
4,418

 
4,203

Intangible assets, net
966

 
822

Other assets
1,228

 
1,367

Total Assets
$
11,614

 
$
12,321

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

 
$
987

Accounts payable
799

 
764

Accrued and other current liabilities
1,564

 
1,644

Deferred revenue
378

 
379

Liabilities held for sale
34

 
80

Total Current Liabilities
3,116

 
3,854

Long-term debt
2,165

 
2,159

Deferred revenue
284

 
302

Other liabilities
1,663

 
1,930

Total Liabilities
7,228

 
8,245

Commitments and Contingencies (see Note 11)


 

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

 
4

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

 
—

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

 
—

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

 
716

Accumulated earnings
5,364

 
5,165

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

 
4,041

Nonredeemable noncontrolling interest
35

 
35

Total Equity
4,386

 
4,076

Total Liabilities and Equity
$
11,614

 
$
12,321

See Notes to Unaudited Consolidated Financial Statements.

5

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

 
$
485

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

Income from continuing operations
456

 
532

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

 
257

Non-cash compensation expense
39

 
44

Deferred income taxes
89

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

 
37

Loss on extinguishment of debt
168


—

Legacy legal matters
(18
)
 
—

Loss on divestitures, net
107

 
19

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

Other non-cash items
10

 
8

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

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

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

Income taxes, net
(11
)
 
4

Other
23

 
(41
)
Net cash provided by operating activities
504

 
511

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

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

 
283

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

 
(27
)
Other
—

 
4

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

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

 
258

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

Proceeds from issuance of long-term debt
—

 
570

Proceeds from exercise of share options
57

 
70

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

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

 
38

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

 
892

Cash and cash equivalents at end of period
$
345

 
$
531

See Notes to Unaudited Consolidated Financial Statements.

6

TYCO INTERNATIONAL PLC
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (UNAUDITED)
For the Nine Months Ended June 24, 2016 and June 26, 2015
(in millions)
 
Number of
Ordinary
Shares
 
Ordinary
Shares at
Par Value
 
Treasury
Shares
 
Additional Paid in Capital
 
Accumulated
Earnings
 
Accumulated
Other
Comprehensive
Loss
 
Total Tyco
Shareholders'
Equity
 
Nonredeemable
Noncontrolling
Interest
 
Total
Equity
Balance as of September 26, 2014
427

 
$
208

 
$
(2,515
)
 
$
3,306

 
$
4,873

 
$
(1,225
)
 
$
4,647

 
$
23

 
$
4,670

Comprehensive income:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income attributable to Tyco ordinary shareholders
 
 
 
 
 
 
 
 
485

 
 
 
485

 
(3
)
 
482

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

 
(2,844
)
 
 
 
 
 
—

 
 
 
—

Dividends declared
 
 
 
 
 
 
2

 
(172
)
 
 
 
(170
)
 
 
 
(170
)
Conversion of Tyco International Ltd. common shares to Tyco International plc ordinary shares
 
 
(170
)
 
 
 
170

 
 
 
 
 
—

 
 
 
—

Shares issued for vesting of share based equity awards
4

 
 
 
67

 
3

 
 
 
 
 
70

 
 

 
70

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

 
(417
)
Compensation expense
 
 
 
 
 
 
44

 
 
 
 
 
44

 
 

 
44

Noncontrolling interest related to acquisitions and divestitures
 
 
 
 
 
 
 
 
 
 
 
 
—

 
16

 
16

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

 
$
4

 
$
—

 
$
676

 
$
5,186

 
$
(1,562
)
 
$
4,304

 
$
35

 
$
4,339


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

 
$
4

 
$
(3
)
 
$
716

 
$
5,165

 
$
(1,841
)
 
$
4,041

 
$
35

 
$
4,076

Comprehensive income:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income attributable to Tyco ordinary shareholders
 
 
 
 
 
 
 
 
461

 
 
 
461

 
(2
)
 
459

Other comprehensive income, net of tax
 
 
 
 
 
 
 
 
 
 
26

 
26

 
 
 
26

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

 
 
 
 
 
57

 
 
 
 
 
57

 
 
 
57

Compensation expense
 
 
 
 
 
 
39

 
 
 
 
 
39

 
 
 
39

Other


 
 
 
(12
)
 
1

 
 
 
 
 
(11
)
 
2

 
(9
)
Balance as of June 24, 2016
426

 
$
4

 
$
(15
)
 
$
813

 
$
5,364

 
$
(1,815
)
 
$
4,351

 
$
35

 
$
4,386

See Notes to Unaudited Consolidated Financial Statements.

7

TYCO INTERNATIONAL PLC
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS



1.    Basis of Presentation and Summary of Significant Accounting Policies
Basis of Presentation—The Consolidated Financial Statements included herein are unaudited, but in the opinion of management, such financial statements include all adjustments, consisting of normal recurring adjustments, necessary to summarize fairly the Company's financial position, results of operations and cash flows for the interim period. The unaudited Consolidated Financial Statements include the consolidated results of Tyco International plc, a corporation organized under the laws of Ireland, and its subsidiaries (Tyco and all its subsidiaries, hereinafter collectively referred to as the "Company" or "Tyco"). The unaudited Consolidated Financial Statements have been prepared in United States dollars ("USD") and in accordance with the instructions to Form 10-Q under the Securities and Exchange Act of 1934, as amended. The results reported in these unaudited Consolidated Financial Statements should not be taken as indicative of results that may be expected for the entire year. These financial statements should be read in conjunction with the Consolidated Financial Statements and accompanying notes contained in the Company's Annual Report on Form 10-K for the fiscal year ended September 25, 2015 (the "2015 Form 10-K") and Current Report filed on Form 8-K filed on March 11, 2016 which recast the Company's consolidated financial statements for each of the three years in the period ended September 25, 2015 to reflect changes in the presentation of operating income by segment. The information included in this Form 8-K was presented for informational purposes only and does not amend or restate the Company’s audited consolidated financial statements, which were included in its 2015 Form 10-K, and did not affect the Company’s previously reported net income, earnings per share, cash flows, operating income or assets or liabilities for any of the periods presented therein.
References to 2016 and 2015 are to Tyco's fiscal quarters ending June 24, 2016 and June 26, 2015, respectively, unless otherwise indicated. The Company has a 52- or 53-week fiscal year that ends on the last Friday in September. Fiscal 2016 is a 53-week year as compared with fiscal 2015, which was 52 weeks, with the additional week occurring in the fourth quarter of fiscal 2016. The Company's results for the quarters and nine months ended June 24, 2016 and June 26, 2015 both consisted of 13 weeks and 39 weeks, respectively.
The Company operates and reports financial and operating information in the following three segments: North America Integrated Solutions & Services ("NA Integrated Solutions & Services"), Rest of World Integrated Solutions & Services ("ROW Integrated Solutions & Services") and Global Products. The Company also provides general corporate services to its segments which is reported as a fourth, non-operating segment, Corporate and Other.
Proposed Merger with Johnson Controls, Inc.— On January 24, 2016, Tyco entered into an Agreement and Plan of Merger (as amended, the “Merger Agreement”) with Johnson Controls, Inc., a Wisconsin corporation (“Johnson Controls”), and certain other parties named therein (which was subsequently amended by Amendment No. 1 on July 1, 2016), including Jagara Merger Sub LLC, a Wisconsin limited liability company and indirect wholly owned subsidiary of Tyco (“Merger Sub”). Pursuant to the Merger Agreement and subject to the terms and conditions set forth therein, Merger Sub will merge with and into Johnson Controls (the “Merger”), with Johnson Controls surviving the Merger as an indirect wholly owned subsidiary of Tyco. At the effective time of the Merger, Tyco will change its name to “Johnson Controls International plc” and will trade under the ticker symbol “JCI.” Following such time, Tyco is referred to below as the “Combined Company.”
As a result of the Merger, each outstanding share of Johnson Controls common stock (the “Johnson Controls Shares”), other than shares held by Johnson Controls, its subsidiaries, Tyco or Merger Sub, will be converted into the right to receive (subject to proration as described below), at the holder’s election, either: (i) one (1) (the “Exchange Ratio”) ordinary share of the Combined Company (the “Share Consideration”); or (ii) an amount in cash equal to $34.88 (the “Cash Consideration”). Elections will be prorated so that Johnson Controls shareholders will receive in the aggregate approximately $3.864 billion of cash in the Merger (the “Aggregate Cash Consideration”). Holders that do not make an election will be treated as having elected to receive the Share Consideration. The Exchange Ratio takes into account the effects of a Tyco share consolidation contemplated by the Merger Agreement whereby, immediately prior to the Merger, every issued and unissued ordinary share of Tyco (each, a “Tyco Share”) will be consolidated into 0.955 of a share of Tyco.
The completion of the Merger is subject to certain closing conditions, including, among others, (i) the approval and adoption of the Merger Agreement by holders of two-thirds of the Johnson Controls Shares entitled to vote on such matter, (ii) the approval by the Tyco shareholders, at a special meeting of the Tyco shareholders (the “Tyco Special Meeting”) of (A) the issuance of Tyco shares in connection with the Merger, (B) the Tyco share consolidation and (C) the increase in Tyco’s authorized share capital, in each case, by a majority of the votes cast on these matters at the Tyco Special Meeting, and of certain amendments to Tyco’s articles of association, including a change of its name to “Johnson Controls International plc,” by at least 75% of the votes cast on these matters at the Tyco Special Meeting (clause (ii), collectively, the “Tyco Shareholder

8
TYCO INTERNATIONAL PLC
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


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

9
TYCO INTERNATIONAL PLC
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


entitled in exchange for those goods or services. When applying the new revenue model to contracts with customers the guidance requires five steps to be applied, which include: 1) identify the contract(s) with a customer, 2) identify the performance obligations in the contract, 3) determine the transaction price, 4) allocate the transaction price to the performance obligations in the contract and 5) recognize revenue when (or as) the entity satisfies a performance obligation. The guidance also requires quantitative and qualitative disclosures that are more comprehensive than existing standards. The disclosures are intended to enable financial statement users to understand the nature, timing and uncertainty of revenue and the related cash flow. The new standard permits either the full retrospective method or the modified retrospective method of adoption. In August 2015, the FASB issued authoritative guidance to defer the effective date of this guidance, which for Tyco will be the first quarter of fiscal 2019, with early adoption permitted beginning the first quarter of fiscal 2018. In March 2016, the FASB issued additional authoritative guidance clarifying its implementation guidance on principal versus agent considerations when determining whether to report revenue gross versus net. In April 2016, the FASB issued additional authoritative guidance clarifying issues related to identifying performance obligations and licensing. In May 2016, the FASB issued additional authoritative guidance specifically in the areas of assessing collectability, presentation of sales taxes, noncash consideration, and completed contracts and contract modifications. The Company is in the process of assessing the impact the guidance is expected to have upon adoption, including determining the adoption method.
In May 2015, the FASB issued authoritative guidance that is intended to improve the existing disclosure requirements for short-duration contracts for insurance entities that issue such contracts. The guidance requires additional information to be disclosed about the liability for unpaid claims and claim adjustment expenses to increase the transparency of significant estimates made in measuring those liabilities. This guidance is effective for Tyco in the first quarter of fiscal 2017, with early adoption permitted. The Company is currently assessing the impact, if any, the guidance may have upon adoption.
In July 2015, the FASB issued authoritative guidance intended to simplify the existing guidance under which an entity must measure inventory at the lower of cost or market. Under the new guidance, inventory is “measured at the lower of cost and net realizable value,” and does not apply to inventory that is measured using last-in, first-out or the retail method. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. This guidance is effective for Tyco in the first quarter of fiscal 2017, with early adoption permitted on a prospective basis. The Company is currently assessing the impact, if any, the guidance may have upon adoption.

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

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

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


10
TYCO INTERNATIONAL PLC
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


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

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

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

 
$
12

Merger costs
7

 
33

Total
$
19

 
$
45

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

11
TYCO INTERNATIONAL PLC
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


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

12
TYCO INTERNATIONAL PLC
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


Discontinued Operations
The components of (loss) income from discontinued operations, net of income taxes are as follows ($ in millions):
 
For the Quarters Ended
 
For the Nine Months Ended
 
June 24, 2016
 
June 26, 2015
 
June 24, 2016
 
June 26, 2015
Net revenue
$
—

 
$
5

 
$
1

 
$
15

Pre-tax loss from discontinued operations
—

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

 
(28
)
Income tax expense (1)
(1
)
 
—

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

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

 
$
54

Inventories
6

 
8

Prepaid expenses and other current assets
6

 
26

Deferred income taxes
—

 
1

Property, plant and equipment, net
13

 
24

Goodwill
—

 
34

Intangible assets, net
33

 
57

Other assets
4

 
4

  Total assets
$
71

 
$
208

Accounts payable
12

 
22

Accrued and other current liabilities
19

 
43

Deferred revenue
3

 
5

Other liabilities
—

 
10

  Total liabilities
$
34

 
$
80

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


13
TYCO INTERNATIONAL PLC
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


4.    Restructuring and Asset Impairment Charges, Net
During fiscal 2016, the Company identified and pursued additional opportunities for cost savings through restructuring activities and workforce reductions to improve operating efficiencies across the Company's businesses. The Company expects to incur restructuring and restructuring related charges between $35 million and $50 million in fiscal 2016, which does not include repositioning charges, as described below.
The Company recorded restructuring and asset impairment charges (income) by action as follows ($ in millions):
 
For the Quarters Ended
 
For the Nine Months Ended
 
June 24, 2016
 
June 26, 2015
 
June 24, 2016
 
June 26, 2015
2016 actions
$
6

 
$
—

 
$
21

 
$
—

2015 actions
(1
)
 
39

 
—

 
97

2014 and prior actions
—

 
(1
)
 
1

 
11

Total restructuring and asset impairment charges, net
$
5

 
$
38

 
$
22

 
$
108

Charges reflected in SG&A
$
—

 
$
—

 
$
1

 
$
—

Charges reflected in restructuring and asset impairments, net
5

 
38

 
21

 
108

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

ROW Integrated Solutions & Services
1

Global Products
1

Total
$
6

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

 
$
—

 
$
—

 
$
6

ROW Integrated Solutions & Services
4

 
—

 
—

 
4

Global Products
5

 
1

 
1

 
7

Corporate and Other
4

 
—

 
—

 
4

Total
$
19

 
$
1

 
$
1

 
$
21

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

Charges
22

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


14
TYCO INTERNATIONAL PLC
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


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

 
$
—

 
$
1

ROW Integrated Solutions & Services
34

 
1

 
35

Global Products
1

 
—

 
1

Corporate and Other
2

 
—

 
2

Total
$
38

 
$
1

 
$
39


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

 
$
—

 
$
27

ROW Integrated Solutions & Services
 
48

 
6

 
54

Global Products
 
4

 
—

 
4

Corporate and Other
 
12

 
—

 
12

Total
 
$
91

 
$
6

 
$
97

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

 
$
3

 
$
1

 
$
45

ROW Integrated Solutions & Services
81

 
9

 
1

 
91

Global Products
21

 
1

 
(1
)
 
21

Corporate and Other
20

 
1

 
—

 
21

Total
$
163

 
$
14

 
$
1

 
$
178


15
TYCO INTERNATIONAL PLC
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


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

Charges
8

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

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

 
$
140

Other liabilities
13

 
15

Total
$
109

 
$
155

Restructuring reserves for businesses that are included in Liabilities held for sale within the Consolidated Balance Sheets are excluded from the table above. See Note 3.
Repositioning
The Company has initiated certain global actions designed to reduce its cost structure and improve future profitability by streamlining operations and better aligning functions, which the Company refers to as repositioning actions. These actions may or may not lead to a future restructuring action. During the quarters ended June 24, 2016 and June 26, 2015, the Company recorded net repositioning charges of $8 million and $27 million, respectively, and $19 million and $61 million for the nine months ended June 24, 2016 and June 26, 2015, respectively, primarily related to professional fees which have been reflected in Selling, general and administrative expenses within the Consolidated Statements of Operations.


16
TYCO INTERNATIONAL PLC
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


5.    Acquisitions
During the quarter ended June 24, 2016, cash consideration for acquisitions included in continuing operations was $6 million related to an acquisition that is being integrated within the Company's Global Products segment.
During the nine months ended June 24, 2016, cash consideration for acquisitions included in continuing operations was $320 million. This included cash consideration of $176 million, which was comprised of $182 million of cash paid, net of cash acquired of $6 million and related to the acquisition of ShopperTrak, a leading global provider of retail consumer behavior insights and location-based analytics. ShopperTrak is being integrated into the NA Integrated Solutions & Services and ROW Integrated Solutions & Services segments. In addition, cash consideration for the nine month period also included $128 million, which was comprised of $166 million of cash paid, including $5 million to settle pre-existing matters and $6 million for prepaid agency commissions, net of cash acquired of $27 million, related to an additional investment in the Company's Tyco UAE joint venture with its local partner Suwaidi Engineering Group ("Suwaidi") in the United Arab Emirates ("UAE"). Tyco UAE is a leading provider of fire, security and integrated solutions and services in the UAE and also has operations in Qatar and Oman. Effective with the date of this transaction, the Company consolidated 100% of Tyco UAE, which is recorded in the Company's ROW Integrated Solutions & Services segment. The total enterprise fair value of the UAE joint venture was allocated as follows: $99 million of assets, $136 million of goodwill, $99 million of intangible assets and the assumption of $32 million of liabilities. The Company's proportionate share of the joint venture's net income was historically recorded in Selling, general and administrative expenses within the Consolidated Statements of Operations for periods prior to the acquisition date. As a result of this transaction, the Company recorded a net gain of $111 million which primarily relates to the Company's previously held 49% equity interest in the joint venture, which was previously accounted for under the equity method of accounting, inclusive of a charge for the settlement of pre-existing matters with the Company's former joint venture partner. The Company recorded the net gain in Selling, general and administrative expenses within the Consolidated Statements of Operations during the quarter ended December 25, 2015. The balance of the cash paid during the nine months ended June 24, 2016 of $16 million related to acquisitions within the Company's ROW Integrated Solutions & Services and Global Products segments which were not material.
The Company finalized the determination of fair value of certain assets and liabilities related to the ShopperTrak acquisition during the third quarter of fiscal 2016 with no material effect on the purchase price allocation. In addition, during the nine months ended June 24, 2016, the Company finalized the determination of fair value for certain assets and liabilities relating to the acquisitions closed during the first quarter of fiscal 2016 and fourth quarter of fiscal 2015, with no material adjustment to the preliminary purchase price allocations.
During the quarter ended June 26, 2015, the Company did not complete any acquisitions. During the nine months ended June 26, 2015, total consideration paid, net of $26 million of cash acquired and $8 million of holdback liability, for 11 acquisitions included in continuing operations was $525 million. The largest of these was the acquisition of Industrial Safety Technologies International ("IST"), a global leader in gas and flame detection with operations in Europe, the Middle East, China, and the U.S., for total consideration paid, net of $5 million of cash acquired, of $327 million. The purchase price for IST has been allocated as follows: $68 million of assets, $136 million of goodwill, $143 million of intangible assets and the assumption of $15 million of liabilities. IST has been integrated into the Global Products segment. The remaining 10 acquisitions during the nine months ended June 26, 2015 have been integrated into the ROW Integrated Solutions & Services and Global Products segments.
Acquisition and Integration Related Costs
Acquisition and integration related costs are expensed as incurred. During the quarters ended June 24, 2016 and June 26, 2015, the Company incurred acquisition and integration related costs of $5 million and $2 million, respectively. During the nine months ended June 24, 2016 and June 26, 2015, the Company incurred acquisition and integration related costs of $9 million and $4 million, respectively. Such costs are recorded in Selling, general and administrative expenses within the Company's Consolidated Statements of Operations.


17
TYCO INTERNATIONAL PLC
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


6.    Income Taxes
Tyco did not have a significant change to its unrecognized tax benefits during the quarter ended June 24, 2016.
Many of Tyco's uncertain tax positions relate to tax years that remain subject to audit by the taxing authorities in U.S. federal, state and local or foreign jurisdictions. Open tax years in significant jurisdictions included in continuing operations are as follows:
Jurisdiction
Years Open
To Audit
Australia
2008-2015
Canada
2007-2015
Germany
2006-2015
Ireland
2011-2015
Switzerland
2006-2015
United Kingdom
2013-2015
United States
2008-2015
Based on the current status of its income tax audits, the Company believes the unrecognized tax benefits that may be resolved in the next twelve months are not expected to be material.
At each balance sheet date, the Company evaluates whether it is more likely than not that Tyco's deferred tax assets will be realized and if sufficient future taxable income will be available by assessing current period and projected operating results and other pertinent data. As of June 24, 2016, Tyco recorded deferred tax assets of approximately $182 million, which is comprised of $2.3 billion gross deferred tax assets net of $2.1 billion valuation allowances.
Tax Sharing Agreement and Other Income Tax Matters
In connection with the 2012 and 2007 Separations, Tyco entered into the 2012 and 2007 Tax Sharing Agreements, respectively, that govern the respective rights, responsibilities, and obligations of (i) Tyco, Pentair plc and ADT Corporation after the 2012 Separation and (ii) Tyco, Covidien plc (subsequently acquired by Medtronic plc) and TE Connectivity Ltd. after the 2007 Separation, with respect to taxes. Specifically, this includes taxes in the ordinary course of business and taxes, if any, incurred as a result of any failure of the respective distributions to qualify tax-free for U.S. federal income tax purposes within the meaning of Section 355 of the Internal Revenue Code ("the Code") or certain internal transactions undertaken in anticipation of the spin-offs to qualify for tax-favored treatment under the Code.
Under the 2012 Tax Sharing Agreement, Tyco, Pentair and ADT share (i) certain pre-Distribution income tax liabilities that arise from adjustments made by tax authorities to ADT's, Tyco Flow Control's and Tyco's income tax returns, and (ii) payments required to be made by Tyco with respect to the 2007 Tax Sharing Agreement, excluding approximately $175 million of pre-2012 Separation related tax liabilities (collectively, "Shared Tax Liabilities"). Tyco will be responsible for the first $500 million of Shared Tax Liabilities. Pentair and ADT will share 42% and 58%, respectively, of the next $225 million of Shared Tax Liabilities. Tyco, Pentair and ADT will share 52.5%, 20% and 27.5%, respectively, of Shared Tax Liabilities above $725 million. All costs and expenses associated with the management of these Shared Tax Liabilities will generally be shared 20%, 27.5% and 52.5% by Pentair, ADT and Tyco, respectively. In connection with the execution of the 2012 Tax Sharing Arrangement, Tyco established liabilities representing the fair market value of its obligations which is recorded in Other liabilities within the Company's Consolidated Balance Sheet with an offset to Tyco shareholders' equity.
Under the 2007 Tax Sharing Agreement, Tyco shares responsibility for certain of Tyco's, Covidien's and TE Connectivity's income tax liabilities, which result in cash payments, based on a sharing formula for periods prior to and including June 29, 2007. More specifically, Tyco, Covidien and TE Connectivity share 27%, 42% and 31%, respectively, of shared income tax liabilities that arise from adjustments made by tax authorities to Tyco's, Covidien's and TE Connectivity's U.S. and certain non-U.S. income tax returns. The costs and expenses associated with the management of these shared tax liabilities are generally shared equally among the parties. In connection with the execution of the 2007 Tax Sharing Agreement, Tyco established a net receivable from Covidien and TE Connectivity representing the amount Tyco expected to receive for pre-2007 Separation uncertain tax positions, including amounts owed to the Internal Revenue Service ("IRS"). Tyco also established liabilities representing the fair market value of its share of Covidien's and TE Connectivity's estimated obligations, primarily to the IRS, for their pre-2007 Separation taxes covered by the 2007 Tax Sharing Agreement.

18
TYCO INTERNATIONAL PLC
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


Tyco assesses the shared tax liabilities and related guaranteed liabilities related to both the 2012 and 2007 Tax Sharing Agreements at each reporting period. Tyco will provide payment to Pentair and ADT under the 2012 Tax Sharing Agreement and Covidien and TE Connectivity under the 2007 Tax Sharing Agreement as the shared income tax liabilities are settled. Settlement is expected to occur as the tax audit and legal processes are completed for the impacted years and cash payments are made. Due to the nature of the unresolved adjustments described in the next paragraph, the maximum amount of future payments under the 2012 and 2007 Tax Sharing Agreements is not known. Such cash payments, when they occur, will reduce the guarantor liability as they represent an equivalent reduction of risk. Tyco also assesses the sufficiency of the 2012 and 2007 Tax Sharing Agreements guarantee liabilities on a quarterly basis and will increase the liability when it is probable that cash payments expected to be made exceed the recorded balance.
Tyco and its subsidiaries' income tax returns are examined periodically by various tax authorities. In connection with these examinations, tax authorities, including the IRS, have raised issues and proposed tax adjustments, in particular with respect to years preceding the 2007 Separation. The issues and proposed adjustments related to such years are generally subject to the sharing provisions of the 2007 Tax Sharing Agreement and Tyco's liabilities under the 2007 Tax Sharing Agreement are further subject to the sharing provisions in the 2012 Tax Sharing Agreement. Tyco has previously disclosed that on June 20, 2013, it had received Notices of Deficiency from the IRS asserting that several of Tyco's former U.S. subsidiaries owed additional taxes of $883.3 million plus penalties of $154 million based on audits of the 1997 through 2000 tax years of Tyco and its subsidiaries as they existed at that time. In addition, Tyco received Final Partnership Administrative Adjustments for certain U.S. partnerships owned by former U.S. subsidiaries with respect to which an additional tax deficiency of approximately $30 million had been asserted. These amounts excluded interest and did not reflect the roll-forward impact on subsequent audit periods.
As previously reported, the Company, as Audit Managing Party under each Tax Sharing Agreement dated September 25, 2007 (among the Company, TE Connectivity Ltd. and Covidien plc (which on January 26, 2015 was acquired by and now operates as a subsidiary of Medtronic plc) and dated September 28, 2012 (among the Company, The ADT Corporation and Pentair Ltd. (along with TE Connectivity and Covidien, the "Parties")), entered into Stipulations of Settled Issues with the IRS intended to resolve all Federal tax disputes related to the intercompany debt issues for the Company’s 1997 - 2000 audit cycle before the U.S. Tax Court. The Stipulations of Settled Issues were contingent upon the IRS Appeals Division applying the same settlement terms to all intercompany debt issues on appeal for subsequent audit cycles (2001 - 2007). On May 17, 2016 the IRS Office of Appeals issued fully-executed Forms 870-AD that effectively settled the matters on appeal on the same terms as those set forth in the Stipulations of Settled Issues, and on May 31, 2016, the U.S. Tax Court entered decisions consistent with the Stipulations of Settled Issues. As a result, all aspects of this controversy that were before the U.S. Tax Court and Appeals Division of the IRS have been finally resolved for audit cycles 1997 - 2007. The Company paid $120 million to TE Connectivity Ltd. and $2 million to Covidien during the second quarter of fiscal 2016 representing its share of the total amount payable to the IRS in connection with this matter.
Additionally, during the third quarter of fiscal 2016, the Company also paid $12 million to Covidien and $4 million to TE Connectivity with respect to other matters sharable pursuant to the 2007 Tax Sharing Agreement.
As a result of the final settlement, the Company assessed its remaining obligations under its tax sharing agreements. Based on the assessment performed, the Company reversed a portion of its shared tax obligation liabilities related to the 2007 and 2012 Tax Sharing Agreements, and recognized a gain of $54 million in Other income (expense), net within the Consolidated Statements of Operations for both the quarter and nine months ended June 24, 2016. The Company believes the remaining liabilities that it has recorded are sufficient to cover its future obligations under the Tax Sharing Agreements.
In addition to dealing with tax liabilities for periods prior to the respective Separations, the 2012 and 2007 Tax Sharing Agreements contain sharing provisions to address the contingencies that the 2012 or 2007 Separations, or internal transactions related thereto, may be deemed taxable by U.S. or non U.S. taxing authorities. In the event the 2012 Separation is determined to be taxable and such determination was the result of actions taken after the 2012 Separations by Tyco, ADT or Pentair, the party responsible for such failure would be responsible for all taxes imposed on each company as a result thereof. If such determination is not the result of actions taken by Tyco, ADT or Pentair after the 2012 Separation, then Tyco, ADT and Pentair would be responsible for any taxes imposed on any of the companies as a result of such determination in the same manner and in the same proportions as described above. Similar provisions exist in the 2007 Tax Sharing Agreement. If either of the 2007 or 2012 Separation, or internal transactions taken in anticipation thereof, were deemed taxable, the associated liability could be significant. Tyco is responsible for all of its own taxes that are not shared pursuant to the 2012 and 2007 Tax Sharing Agreements' sharing formulas. In addition, Pentair and ADT, and Covidien and TE Connectivity are responsible for their tax liabilities that are not subject to the 2012 or 2007 Tax Sharing Agreements' sharing formula.

19
TYCO INTERNATIONAL PLC
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


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

 
$
—

 
$
—

 
$
19

 
—

 
—

 
—

 
19

Tax sharing agreement related liabilities:
 
 
 
 
 
 
 
Accrued and other current liabilities
—

 
—

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

 
(194
)
 
(16
)
 
(46
)
 
(30
)
 
(209
)
Net liability
$
(16
)
 
$
(46
)
 
$
(30
)
 
$
(190
)
In addition to the amounts above, pursuant to the terms of the 2012 Separation and Distribution Agreement, Tyco, ADT and Pentair are each responsible for issuing their own shares upon employee exercise of a stock option award or vesting of a restricted unit award. However, the 2012 Tax Sharing Agreement provides that any allowable compensation tax deduction for such awards is to be claimed by the employee's current employer. The 2012 Tax Sharing Agreement requires the employer claiming a tax deduction for shares issued by the other companies to pay a percentage of the allowable tax deduction to the company issuing the equity. During the quarter ended June 24, 2016, Tyco made a $1 million net payment to ADT in connection with deductions claimed for ADT shares issued to Company employees. During the nine months ended June 24, 2016, Tyco made a $15 million net payment to Pentair and a $2 million net payment to ADT in connection with deductions claimed for Pentair and ADT shares issued to Company employees. Payments made to Pentair and ADT for the quarter and nine months ended June 26, 2015 were not material.
Other Income Tax Matters
Except for earnings that are currently distributed, no additional material provision has been made for U.S. or non-U.S. income taxes on the undistributed earnings of subsidiaries or for deferred tax liabilities for temporary differences related to investments in subsidiaries, since the earnings are expected to be permanently reinvested, the investments are essentially permanent in duration, or Tyco has concluded that no additional tax liability will arise as a result of the distribution of such earnings. A liability could arise if amounts are distributed by such subsidiaries or if such subsidiaries are ultimately disposed. It is not practicable to estimate the additional income taxes related to permanently reinvested earnings or the basis differences related to investments in subsidiaries.


20
TYCO INTERNATIONAL PLC
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


7.    Earnings Per Share
The reconciliations between basic and diluted earnings per share attributable to Tyco ordinary shareholders are as follows (in millions, except per share data):
 
For the Quarter Ended
June 24, 2016
 
For the Quarter Ended
June 26, 2015
 
Income
 
Shares
 
Per Share
Amount
 
Income
 
Shares
 
Per Share
Amount
Basic earnings per share attributable to Tyco ordinary shareholders:
 
 
 
 
 
 
 
 
 
 
 
Income from continuing operations
$
241

 
426

 
$
0.57

 
$
188

 
421

 
$
0.45

Share options and restricted share awards


 
3

 
 
 
—

 
6

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

 
429

 
$
0.56

 
$
188

 
427

 
$
0.44

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

 
425

 
$
1.08

 
$
535

 
421

 
$
1.27

Share options and restricted share awards


 
3

 
 
 
—

 
6

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

 
428

 
$
1.07

 
$
535

 
427

 
$
1.25

The computation of diluted earnings per share for the quarter and nine months ended June 24, 2016 excludes the effect of the potential exercise of share options to purchase approximately 6 million shares for both periods and excludes restricted stock units of approximately 2 million shares for both periods because the effect would be anti-dilutive.
The computation of diluted earnings per share for the quarter and nine months ended June 26, 2015 excludes the effect of the potential exercise of share options to purchase approximately 3 million shares for both periods and excludes restricted stock units of approximately 1 million and 2 million shares, respectively, for the quarter and nine months ended June 26, 2015 because the effect would be anti-dilutive.

21
TYCO INTERNATIONAL PLC
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


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

 
$
1,938

 
$
1,809

 
$
5,849

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

 
870

 
1,242

 
4,088

2015 activity:


 


 


 


Acquisitions / purchase accounting adjustments
23

 
50

 
274

 
347

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


 

 

 

Gross goodwill
$
2,096

 
$
1,821

 
$
2,047

 
$
5,964

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

 
753

 
1,480

 
4,203

2016 activity:


 


 


 


Acquisitions / purchase accounting adjustments
73

 
161

 
5

 
239

Currency translation
5

 
(23
)
 
(6
)
 
(24
)


 

 

 

Gross goodwill
$
2,174

 
$
1,959

 
$
2,046

 
$
6,179

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

 
$
891

 
$
1,479

 
$
4,418

Intangible Assets

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

 
$
960

 
$
1,167

 
$
918

Intellectual property
879

 
528

 
760

 
496

Other
8

 
5

 
7

 
4

Total
$
2,153

 
$
1,493

 
$
1,934

 
$
1,418

Non-Amortizable:
 
 
 
 
 
 
 
Intellectual property
$
211

 
 

 
$
210

 
 
Franchise rights
76

 
 

 
76

 
 
In-process research and development
19

 
 
 
20

 
 
Total
$
306

 
 

 
$
306

 
 

22
TYCO INTERNATIONAL PLC
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


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

 
$
—

3.375% public notes due 2015(2)
—

 
258

3.75% public notes due 2018
67

 
67

7.0% public notes due 2019(2)
—

 
245

6.875% public notes due 2021(2)
—

 
465

4.625% public notes due 2023
42

 
42

1.375% Euro-denominated public notes due 2025
564

 
558

3.9% public notes due 2026
745

 
745

5.125% public notes due 2045
746

 
746

Other (2)
1

 
20

Total debt
2,506

 
3,146

Less current portion
341

 
987

Long-term debt
$
2,165

 
$
2,159

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

23
TYCO INTERNATIONAL PLC
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


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

24
TYCO INTERNATIONAL PLC
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


Derivative Instruments
In the normal course of business, Tyco is exposed to market risk arising from changes in currency exchange rates, interest rates and commodity prices. The Company may use derivative financial instruments to manage exposures to foreign currency, interest rate and commodity risks. The Company's objective for utilizing derivative financial instruments is to manage these risks using the most effective methods to eliminate or reduce the impacts of these exposures. The Company does not use derivative financial instruments for trading or speculative purposes. As of and during the nine months ended June 24, 2016, the Company did not hold or enter into any commodity derivative instruments or interest rate swaps.
For derivative instruments that are designated and qualified as hedging instruments for accounting purposes, the Company documents and links the relationships between the hedging instruments and hedged items. The Company also assesses and documents at the hedge's inception whether the derivatives used in hedging transactions are effective in offsetting changes in fair values associated with the hedged items. During the quarter ended March 27, 2015, the Company designated its 2025 Euro notes as a net investment hedge of the Company’s investments in certain of its international subsidiaries that use the Euro as their functional currency and intercompany permanent loans in order to reduce the volatility caused by changes in foreign currency exchange rates of the Euro with respect to the U.S. Dollar. During both the quarter and nine months ended June 24, 2016, the change in the carrying value due to remeasurement of the 2025 Euro notes resulted in a net loss of $6 million reported in Accumulated other comprehensive loss within the Consolidated Statement of Shareholders' Equity. During the quarter and nine months ended June 26, 2015, the change in the carrying value due to remeasurement of the 2025 Euro notes resulted in a $12 million loss and an $8 million gain, respectively, reported in Accumulated other comprehensive loss on the Consolidated Balance Sheet. This hedge did not result in any hedge ineffectiveness for the quarters and nine months ended June 24, 2016 and June 26, 2015.
Foreign Currency Exposures
As of June 24, 2016 and September 25, 2015, the total gross notional amount of the Company's foreign exchange contracts was $614 million and $365 million, respectively. The fair value of these derivative financial instruments and impact of such changes in the fair value was not material to the Consolidated Balance Sheets as of June 24, 2016 and September 25, 2015 or Consolidated Statements of Operations and Consolidated Statements of Cash Flows for the quarters and nine months ended June 24, 2016 and June 26, 2015.
Counterparty Credit Risk
The use of derivative financial instruments exposes the Company to counterparty credit risk. Tyco has established policies and procedures to limit its exposure to counterparty credit risk, including establishing limits for credit exposure and continually assessing the creditworthiness of counterparties. As a matter of practice, the Company deals with major banks worldwide having strong investment grade long-term credit ratings. To further reduce the risk of loss, the Company generally enters into International Swaps and Derivatives Association master netting agreements with substantially all of its counterparties. The Company's derivative contracts do not contain any credit risk related contingent features and do not require collateral or other security to be furnished by the Company or the counterparties. The Company's exposure to credit risk associated with its derivative instruments is measured on an individual counterparty basis, as well as by groups of counterparties that share similar attributes. The Company does not anticipate any non-performance by any of its counterparties, and the concentration of risk with financial institutions does not present significant credit risk to the Company. The maximum amount of loss that the Company would incur as of June 24, 2016 without giving consideration to the effects of legally enforceable master netting agreements was not material.
Cash Equivalents and Investments
The fair value of cash equivalents approximates carrying value and is included in Level 1.
Investments may include marketable securities such as U.S. government obligations, U.S. government agency and corporate debt securities, equity securities, exchange traded funds or time deposits with banks.
When available, the Company uses quoted market prices to determine the fair value of investment securities. Such investments are included in Level 1. When quoted market prices are not readily available, pricing determinations are made based on the results of market approach valuation models using observable market data such as recently reported trades, bid and offer information and benchmark securities. These investments are included in Level 2 and consist primarily of U.S. government agency securities and corporate debt securities.

25
TYCO INTERNATIONAL PLC
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


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

 
$
—

 
$
81

 
$
81

 
$
—

 
$
—

Available-for-sale securities:


 


 


 
 
 


 
 
  Exchange traded funds (fixed income) (1)
176

 
—

 
176

 
—

 
15

 
161

  Exchange traded funds (equity) (1)
81

 
—

 
81

 
—

 
—

 
81

Trading securities:
 
 
 
 
 
 
 
 
 
 
 
  Exchange traded funds (equity)
55

 
—

 
55

 
—

 
55

 
—

 
$
393

 
$
—

 
$
393

 
$
81

 
$
70

 
$
242

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

 
$
—

 
$
909

 
$
909

 
$
—

 
$
—

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

 
—

 
186

 
—

 
15

 
171

  Exchange traded funds (equity) (1)
77

 
—

 
77

 
—

 
—

 
77

Trading securities:
 
 
 
 
 
 
 
 
 
 
 
  Exchange traded funds (equity)
59

 
—

 
59

 
—

 
59

 
—

 
$
1,231

 
$
—

 
$
1,231

 
$
909

 
$
74

 
$
248

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

26
TYCO INTERNATIONAL PLC
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


11.   Commitments and Contingencies
Environmental Matters
Tyco is involved in various stages of investigation and cleanup related to environmental remediation matters at a number of sites. The ultimate cost of site cleanup is difficult to predict given the uncertainties regarding the extent of the required cleanup, the interpretation of applicable laws and regulations and alternative cleanup methods. As of June 24, 2016, Tyco concluded that it was probable that it would incur remedial costs in the range of approximately $20 million to $69 million. As of June 24, 2016, Tyco concluded that the best estimate within this range is approximately $31 million, of which $11 million is included in Accrued and other current liabilities and $20 million is included in Other liabilities within the Company's Consolidated Balance Sheet.
As previously disclosed, the majority of the liabilities described above relate to ongoing remediation efforts at a facility in the Company's Global Products segment located in Marinette, Wisconsin, which the Company acquired in 1990 in connection with its acquisition of, among other things, the Ansul product line. As of June 24, 2016, the Company concluded that its remaining remediation and monitoring costs related to the Marinette facility were in the range of approximately $12 million to $44 million. The Company's best estimate within that range is approximately $21 million, of which $9 million is included in Accrued and other current liabilities and $12 million is included in Other liabilities within the Company's Consolidated Balance Sheet. Although the Company has recorded its best estimate of the costs that it will incur to remediate and monitor contamination at the Marinette facility, it is possible that technological, regulatory or enforcement developments, the results of environmental studies or other factors could change the Company's expectations with respect to future charges and cash outlays, and such changes could be material to the Company's future results of operations, financial condition or cash flows.
Asbestos Matters
The Company and certain of its subsidiaries, including Grinnell LLC (“Grinnell”), along with numerous other third parties, are named as defendants in personal injury lawsuits based on alleged exposure to asbestos containing materials. Substantially all cases pending against affiliates of the Company have been filed against Grinnell, and have typically involved product liability claims based primarily on allegations of manufacture, sale or distribution of industrial products that either contained asbestos or were used with asbestos containing components.
During the third quarter of fiscal 2014, the Company, through Grinnell, resolved disputes with certain of its historical insurers and agreed that certain insurance proceeds would be used to establish and fund a qualified settlement fund (“QSF”), within the meaning of the Internal Revenue Code, which would be used for the resolution primarily of Grinnell asbestos liabilities. It is intended that the QSF will receive future insurance payments and proceeds from third party insurers and, in addition, will fund and manage liabilities for certain historical operations of the Company, primarily related to Grinnell. On January 9, 2015, the Company completed a series of restructuring transactions related to the establishment and funding of a dedicated structure pursuant to which a subsidiary of the Company acquired the assets of Grinnell and transferred cash and other assets totaling approximately $278 million (not including $22 million received by the QSF during the quarter ended December 26, 2014 from historic third-party insurers in settlement of coverage disputes) to the structure. As part of the restructuring, subsidiaries in the structure assumed certain liabilities related to historic Grinnell, Scott and Figgie operations, including all historical Grinnell asbestos liabilities, and such subsidiaries purchased additional insurance by, through or from a wholly-owned subsidiary in the structure in order to supplement and enhance existing insurance assets.
The Company consolidates the qualified settlement fund and related entities that were established for the purpose of managing and resolving the liabilities described above. Although the entities in the dedicated structure serve the specific purpose of managing certain liabilities, each entity in the structure is a wholly-owned indirect subsidiary of the Company, and therefore is required to be consolidated under GAAP.
As of June 24, 2016, the Company has determined that there were approximately 3,000 claims pending against its subsidiaries, primarily Grinnell. This amount reflects the Company's current estimate of the number of viable claims made against Grinnell and includes adjustments for claims that are not actively being prosecuted, identify incorrect defendants, are duplicative of other actions or for which the Company is indemnified by third parties.
As of June 24, 2016, the Company's estimated asbestos related net liability recorded within the Company's Consolidated Balance Sheet is $18 million. The net liability within the Consolidated Balance Sheet is comprised of a liability for pending and future claims and related defense costs of $492 million, of which $22 million is recorded in Accrued and other current liabilities, and $470 million is recorded in Other liabilities. The Company also maintains separate cash, investment and other assets within the Consolidated Balance Sheet of $474 million, of which $31 million is recorded in Prepaid expenses and other

27
TYCO INTERNATIONAL PLC
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


current assets, and $443 million is recorded in Other assets. Assets include $11 million of cash and $257 million of investments, which have all been designated as restricted. As of September 25, 2015, the Company's estimated net liability recorded within the Company's Consolidated Balance Sheet was $28 million. The net liability was comprised of a liability for pending and future claims and related defense costs of $515 million, of which $23 million was recorded in Accrued and other current liabilities, and $492 million was recorded in Other liabilities. The Company also maintained separate cash, investment and other assets within the Consolidated Balance Sheet of $487 million, of which $38 million was recorded in Prepaid expenses and other current assets, and $449 million was recorded in Other assets. Assets included $11 million of cash and $263 million of investments, which were all designated as restricted.
The Company periodically assesses the sufficiency of its estimated liability for pending and future asbestos claims and defense costs. On a periodic basis, the Company, through the dedicated structure referred to above, evaluates actual experience regarding asbestos claims filed, settled and dismissed, amounts paid in settlements, and the recoverability of its insurance assets. If and when data from actual experience demonstrate a significant unfavorable discernible trend, the Company performs a valuation of its asbestos related liabilities and corresponding insurance assets including a comprehensive review of the underlying assumptions. In addition, the Company evaluates its ability to reasonably estimate claim activity beyond its current look-forward period (through 2056) in order to assess whether such period continues to be appropriate. In addition to claims and litigation experience, the Company considers additional qualitative and quantitative factors such as changes in legislation, the legal environment, the Company’s strategy in managing claims and obtaining insurance, including its defense strategy, and health related trends in the overall population of individuals potentially exposed to asbestos. The Company evaluates all of these factors and determines whether a change in the estimate of its liability for pending and future claims and defense costs or insurance assets is warranted.
The amounts recorded by the Company for asbestos-related liabilities and insurance-related assets are based on the Company's strategies for resolving its asbestos claims, currently available information, and a number of estimates and assumptions. Key variables and assumptions include the number and type of new claims that are filed each year, the average cost of resolution of claims, the identity of defendants, the resolution of coverage issues with insurance carriers, amount of insurance, and the solvency risk with respect to the Company's insurance carriers. Many of these factors are closely linked, such that a change in one variable or assumption will impact one or more of the others, and no single variable or assumption predominately influences the determination of the Company's asbestos-related liabilities and insurance-related assets. Furthermore, predictions with respect to these variables are subject to greater uncertainty in the later portion of the projection period. Other factors that may affect the Company's liability and cash payments for asbestos-related matters include uncertainties surrounding the litigation process from jurisdiction to jurisdiction and from case to case, reforms of state or federal tort legislation and the applicability of insurance policies among subsidiaries. As a result, actual liabilities or insurance recoveries could be significantly higher or lower than those recorded if assumptions used in the Company's calculations vary significantly from actual results.
Tax Matters
Tyco and its subsidiaries' income tax returns are examined periodically by various tax authorities. In connection with these examinations, tax authorities, including the IRS, have raised issues and proposed tax adjustments, in particular with respect to years preceding the 2007 Separation. The issues and proposed adjustments related to such years are generally subject to the sharing provisions of the 2007 Tax Sharing Agreement and Tyco's liabilities under the 2007 Tax Sharing Agreement are further subject to the sharing provisions in the 2012 Tax Sharing Agreement. Tyco has previously disclosed that on June 20, 2013, it had received Notices of Deficiency from the IRS asserting that several of Tyco's former U.S. subsidiaries owed additional taxes of $883.3 million plus penalties of $154 million based on audits of the 1997 through 2000 tax years of Tyco and its subsidiaries as they existed at that time. In addition, Tyco received Final Partnership Administrative Adjustments for certain U.S. partnerships owned by former U.S. subsidiaries with respect to which an additional tax deficiency of approximately $30 million had been asserted. These amounts excluded interest and did not reflect the roll-forward impact on subsequent audit periods.
As previously reported, the Company, as Audit Managing Party under each Tax Sharing Agreement dated September 25, 2007 (among the Company, TE Connectivity Ltd. and Covidien plc (which on January 26, 2015 was acquired by and now operates as a subsidiary of Medtronic plc) and dated September 28, 2012 (among the Company, The ADT Corporation and Pentair Ltd. (along with TE Connectivity and Covidien, the "Parties")), entered into Stipulations of Settled Issues with the IRS intended to resolve all Federal tax disputes related to the intercompany debt issues for the Company’s 1997 - 2000 audit cycle before the U.S. Tax Court. The Stipulations of Settled Issues were contingent upon the IRS Appeals Division applying the same settlement terms to all intercompany debt issues on appeal for subsequent audit cycles (2001 - 2007). On May 17, 2016 the IRS

28
TYCO INTERNATIONAL PLC
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


Office of Appeals issued fully-executed Forms 870-AD that effectively settled the matters on appeal on the same terms as those set forth in the Stipulations of Settled Issues, and on May 31, 2016, the U.S. Tax Court entered decisions consistent with the Stipulations of Settled Issues. As a result, all aspects of this controversy that were before the U.S. Tax Court and Appeals Division of the IRS have been finally resolved for audit cycles 1997 - 2007. The Company paid $120 million to TE Connectivity Ltd. and $2 million to Covidien during the second quarter of fiscal 2016 representing its share of the total amount payable to the IRS in connection with this matter.
Additionally, during the third quarter of fiscal 2016, the Company also paid $12 million to Covidien and $4 million to TE Connectivity with respect to other matters sharable pursuant to the 2007 Tax Sharing Agreement.
As a result of the final settlement, the Company assessed its remaining obligations under its tax sharing agreements. Based on the assessment performed, the Company reversed a portion of its shared tax obligation liabilities related to the 2007 and 2012 Tax Sharing Agreements, and recognized a gain of $54 million in Other income (expense), net within the Consolidated Statements of Operations for both the quarter and nine months ended June 24, 2016. The Company believes the remaining liabilities that it has recorded are sufficient to cover its future obligations under the Tax Sharing Agreements.
Other Matters
On March 1, 2016, a putative class action lawsuit, Wandel v. Tyco International plc, et al., Docket No. C-000010-16, was filed in the Superior Court of New Jersey naming Tyco, the individual members of its board of directors, Johnson Controls and Merger Sub as defendants. The complaint alleges that Tyco’s directors breached their fiduciary duties and exercised their powers as directors in a manner oppressive to the public shareholders of Tyco in violation of Irish law by, among other things, failing to take steps to maximize shareholder value and failing to protect against purported conflicts of interest. The complaint further alleges that Tyco, Johnson Controls and Merger Sub aided and abetted Tyco’s directors in the breach of their fiduciary duties. The complaint seeks, among other things, to enjoin the merger. The Company believes that the claims asserted by the complaint are not valid.

On May 20, 2016, a putative class action lawsuit, Laufer v. Johnson Controls, Inc., et al., Docket No. 2016CV003859, was filed in the Circuit Court of Wisconsin, Milwaukee County, naming Johnson Controls, the individual members of its board of directors, Tyco and Merger Sub as defendants. The complaint alleges that Johnson Controls' directors breached their fiduciary duties by, among other things, failing to take steps to maximize shareholder value, seeking to benefit themselves improperly and failing to disclose material information in this joint proxy statement/prospectus. The complaint further alleges that Tyco aided and abetted Johnson Controls' directors in the breach of their fiduciary duties. The complaint seeks, among other things, to enjoin the merger. The Company believes that the claims asserted by the complaint are not valid.
 
In addition to the foregoing, the Company is subject to claims and suits, including from time to time, contractual disputes and product and general liability claims, incidental to present and former operations, acquisitions and dispositions. With respect to many of these claims, the Company either self-insures or maintains insurance through third-parties, with varying deductibles. While the ultimate outcome of these matters cannot be predicted with certainty, the Company believes that the resolution of any such proceedings, whether the underlying claims are covered by insurance or not, will not have a material adverse effect on the Company's financial condition, results of operations or cash flows beyond amounts recorded for such matters.
12.    Retirement Plans
Defined Benefit Pension Plans—The Company sponsors a number of pension plans. The following disclosures exclude the impact of plans which are immaterial individually and in the aggregate. The net periodic benefit cost for the Company's material U.S. and non-U.S. defined benefit pension plans is as follows ($ in millions):
 
U.S. Plans
 
For the Quarters Ended
 
For the Nine Months Ended
 
June 24, 2016
 
June 26, 2015
 
June 24, 2016
 
June 26, 2015
Service cost
$
2

 
$
2

 
$
6

 
$
6

Interest cost
8

 
9

 
24

 
27

Expected return on plan assets
(12
)
 
(14
)
 
(36
)
 
(42
)
Amortization of net actuarial loss
3

 
3

 
9

 
7

Net periodic cost (benefit)
$
1

 
$
—

 
$
3

 
$
(2
)

29
TYCO INTERNATIONAL PLC
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


 
Non-U.S. Plans
 
For the Quarters Ended
 
For the Nine Months Ended
 
June 24, 2016
 
June 26, 2015
 
June 24, 2016
 
June 26, 2015
Service cost
$
2

 
$
2

 
$
6

 
$
7

Interest cost
11

 
14

 
32

 
40

Expected return on plan assets
(18
)
 
(19
)
 
(53
)
 
(58
)
Amortization of net actuarial loss
4

 
3

 
11

 
10

Net periodic benefit
$
(1
)
 
$
—

 
$
(4
)
 
$
(1
)
Effective September 26, 2015, the Company changed the approach used to measure service and interest costs for pension benefits.  For fiscal 2015, the Company measured service and interest costs utilizing a single weighted-average discount rate derived from the yield curve used to measure the Company’s plan obligations. For fiscal 2016, the Company elected to measure service and interest costs by applying the specific spot rates along the yield curve over the projected cash flow period.  The Company believes the new approach provides a more precise measurement of service and interest costs by improving the correlation between projected benefit cash flows to the corresponding spot rates on the yield curves. The Company estimates its periodic pension costs for both its U.S. and non-U.S. plans will be reduced by approximately $6 million each in fiscal 2016 as a result of the change. The Company has accounted for this change as a change in accounting estimate and, accordingly, has accounted for it on a prospective basis.
The estimated net actuarial loss for U.S. and non-U.S. pension benefit plans that will be amortized from accumulated other comprehensive loss into net periodic benefit cost over the current fiscal year is expected to be $13 million and $15 million, respectively. Amortization of net periodic benefit cost from Accumulated other comprehensive loss for the Company's pension benefit plans is recorded in Selling, general and administrative expenses, Cost of product sales, or Cost of services within the Consolidated Statements of Operations, depending on the employee job classification.
The Company's funding policy is to make contributions in accordance with the laws and customs of the various countries in which it operates and to make discretionary voluntary contributions from time to time. The Company anticipates that it will contribute $3 million for U.S. plans and $25 million for non-U.S. plans during fiscal 2016.
During the quarter ended June 24, 2016, the Company made required contributions of $1 million to its U.S. pension plans and $3 million to its non-U.S. pension plans. During the nine months ended June 24, 2016, the Company made required contributions of $2 million to its U.S. pension plans and $16 million to its non-U.S. pension plans. The Company did not make any voluntary contributions to its U.S. plans during the nine months ended June 24, 2016. The Company made a voluntary contribution of nil and $4 million to its non-U.S. plans during the quarter and nine months ended June 24, 2016, respectively.
Postretirement Benefit Plans—Net periodic postretirement benefit cost was not material for both periods.
13.    Equity and Comprehensive Income
Authorized Share Capital
As of June 24, 2016 and September 25, 2015, the Company's authorized share capital amounted to $11,000,000 and €40,000, divided into 1,000,000,000 ordinary shares with a par value of $0.01 per share, 100,000,000 preferred shares with a par value of $0.01 per share and 40,000 ordinary A shares with a par value of €1.00 per share. The authorized share capital includes 40,000 ordinary A shares with a par value of €1.00 per share in order to satisfy statutory requirements for the incorporation of all Irish public limited companies. Tyco Ireland may issue shares subject to the maximum prescribed by its authorized share capital contained in its memorandum of association. In connection with the re-domicile to Ireland, the Company canceled all the outstanding treasury shares, including shares held by subsidiaries, with an offsetting reduction in Additional paid in capital.
Issued Share Capital
The Company issued one authorized ordinary share in exchange for each ordinary share of Tyco International Ltd., the Swiss incorporated predecessor of the Company ("Tyco Switzerland") to the former shareholders of Tyco Switzerland. All ordinary shares issued at the effective time of the re-domicile were issued as fully paid-up and non-assessable. See Note 1.

30
TYCO INTERNATIONAL PLC
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


Dividends
The authority to declare and pay dividends is vested in the Board of Directors. The timing, declaration and payment of future dividends to holders of the Company's ordinary shares will be determined by the Company's Board of Directors and will depend upon many factors, including the Company's financial condition and results of operations, the capital requirements of the Company's businesses, industry practice and any other relevant factors.
Under Irish law, dividends may only be paid (and share repurchases and redemptions must generally be funded) out of “distributable reserves.” The creation of distributable reserves was accomplished by way of a capital reduction, which the Irish High Court approved on December 18, 2014.
On June 8, 2016, the Company declared a quarterly dividend of $0.205 per share, payable on August 17, 2016 to shareholders of record on July 22, 2016. As a result, the Company recorded an accrued dividend of $87 million as of June 24, 2016 in Accrued and other current liabilities within the Company's Consolidated Balance Sheet. On March 14, 2016, the Company declared a quarterly dividend of $0.205 per share, paid on May 18, 2016 to shareholders of record on April 22, 2016. On December 8, 2015, the Company declared a quarterly dividend of $0.205 per share, paid on February 17, 2016 to shareholders of record on January 22, 2016. On September 3, 2015, the Company declared a quarterly dividend of $0.205 per share, paid on November 12, 2015 to shareholders of record on October 23, 2015.
On June 4, 2015, the Company declared a quarterly divided of $0.205 per share paid on August 19, 2015 to shareholders of record on July 24, 2015. On March 4, 2015, the Company declared a quarterly dividend $0.205 per share paid on May 20, 2015 to shareholders of record on April 24, 2015.
As previously disclosed in the 2015 Form 10-K, the Company presented dividends declared of $172 million as a reduction of Additional paid in capital within the Company’s Consolidated Statements of Shareholders’ Equity for the nine months ended June 26, 2015. For the year ended September 25, 2015, the Company corrected this presentation to present dividends declared for the periods subsequent to the re-domicile to Ireland as a reduction of Accumulated Earnings within the Consolidated Statement of Shareholder’s Equity to conform the presentation to its stand-alone statutory financial statements prepared under Irish GAAP. The Irish Companies Act (2014) does not permit dividends to be paid from share capital, including share premium. This reclassification had no effect on net revenue, operating income (loss), net income (loss), cash flows and total equity. Accordingly, the Company has reclassed its presentation of dividends declared for the nine months ended June 26, 2015 included herein.
Share Repurchase Program
The Company's Board of Directors approved $1.75 billion and $1 billion share repurchase programs in March 2014 and September 2014, respectively. No shares were repurchased during the quarters ended June 24, 2016 and June 26, 2015 and the nine months ended June 24, 2016. During the nine months ended June 26, 2015, the Company repurchased a total of approximately 10 million shares for approximately $417 million which completed the $1.75 billion share repurchase program. As of June 24, 2016, a total of approximately $1 billion in share repurchase authority remained outstanding.

31
TYCO INTERNATIONAL PLC
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


Comprehensive Income (Loss)
Comprehensive income (loss) is comprised of the following ($ in millions):
 
For the Quarters Ended
 
For the Nine Months Ended
 
June 24,
2016
 
June 26,
2015
 
June 24,
2016
 
June 26,
2015
Net income
$
238

 
$
156

 
$
459

 
$
482

Gain (loss) on foreign currency translation (1)
7

 
25

 
(21
)
 
(349
)
(Loss) gain on liquidation of foreign entities (2)
(1
)
 
3

 
28

 
3

Foreign currency translation
6

 
28

 
7

 
(346
)
Amortization of net actuarial losses (3)
7

 
6

 
20

 
17

Income tax expense
(2
)
 
(2
)
 
(7
)
 
(4
)
Defined benefit and post retirement plans, net of tax
5

 
4

 
13

 
13

Unrealized gain (loss) on marketable securities and derivative instruments (4)
4

 
(6
)
 
9

 
(6
)
Income tax (expense) benefit
(1
)
 
2

 
(3
)
 
2

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

 
(4
)
 
6

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

 
28

 
26

 
(337
)
Comprehensive income
252

 
184

 
485

 
145

Less: comprehensive loss attributable to noncontrolling interests
(1
)
 
—

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

 
$
184

 
$
487

 
$
148

(1) Includes loss of $6 million related to the net investment hedge for both the quarter and nine months ended June 24, 2016. Includes loss of $12 million and gain of $8 million related to the net investment hedge for the quarter and nine months ended June 26, 2015, respectively. See Note 10.
(2) During the quarter ended June 24, 2016, $1 million of cumulative translation gains were transferred from currency translation adjustments to Selling, general and administrative expense within the Consolidated Statements of Operations as a result of the sale of a foreign entity. During the quarter ended March 25, 2016, $31 million of cumulative translation losses were transferred from currency translation adjustments as a result of the sale of a foreign entity. Of this amount, $24 million was applied against a provision for cumulative translation losses within the Consolidated Balance Sheets which was established during the first quarter of fiscal 2016 and $7 million was transferred to Selling, general and administrative expense within the Consolidated Statements of Operations. Additionally, during the quarter ended March 25, 2016, $2 million of cumulative translation gains were transferred from currency translation adjustments and are included in Income (loss) from discontinued operations, net of income taxes within the Consolidated Statements of Operations as a result of the sale of another foreign entity. During both the quarter and nine months ended June 26, 2015, $3 million of cumulative translation losses were transferred from foreign currency translation and included in (Loss) income from discontinued operations in the Consolidated Statements of Operations as a result of the sale of foreign entities.
(3) Reclassified to net periodic (benefit) cost. See Note 12.
(4) When sold, the gain (loss) will be reclassified to realized gain (loss) on marketable securities and derivative instruments and be recorded in Other (expense) income, net within the Consolidated Statements of Operations.

32
TYCO INTERNATIONAL PLC
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


A summary of the changes in each component of Accumulated other comprehensive loss, net of tax, for the nine months ended June 24, 2016 and June 26, 2015 are as follows ($ in millions):
 
Currency
Translation
Adjustments
 
Unrealized (Loss) Gain on
Marketable
Securities and
Derivative
Instruments
 
Retirement
Plans
 
Accumulated Other
Comprehensive Loss
Balance as of September 25, 2015
$
(1,233
)
 
$
(9
)
 
$
(599
)
 
$
(1,841
)
Other comprehensive (loss) income, net of tax
(21
)
 
6

 
—

 
(15
)
Amounts reclassified from accumulated other comprehensive income, net of tax
28

 
—

 
13

 
41

Net current period other comprehensive income
$
7

 
$
6

 
$
13

 
$
26

Balance as of June 24, 2016
$
(1,226
)
 
$
(3
)
 
$
(586
)
 
$
(1,815
)
 
Currency
Translation
Adjustments
 
Unrealized Loss on
Marketable
Securities and
Derivative
Instruments
 
Retirement
Plans
 
Accumulated Other
Comprehensive Loss
Balance as of September 26, 2014
$
(693
)
 
$
—

 
$
(532
)
 
$
(1,225
)
Other comprehensive loss, net of tax
(349
)
 
—

 
—

 
(349
)
Amounts reclassified from accumulated other comprehensive income, net of tax
3

 
(4
)
 
13

 
12

Net current period other comprehensive (loss) income
$
(346
)
 
$
(4
)
 
$
13

 
$
(337
)
Balance as of June 26, 2015
$
(1,039
)
 
$
(4
)
 
$
(519
)
 
$
(1,562
)
14.    Share Plans
During the quarter ended December 25, 2015, the Company issued its annual share-based compensation grants. The total number of awards issued was approximately 3.7 million, of which 2.6 million were stock options, 0.5 million were restricted unit awards and 0.6 million were performance share unit awards. The options and restricted stock units vest in equal annual installments over a period of 4 years, and the performance share unit awards, which are restricted share awards that vest depending upon attainment of various levels of performance, generally vest in their entirety 3 years from the grant date, and 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 $7.18, $36.08 and $37.16, respectively. The weighted-average assumptions used in the Black-Scholes option pricing model included an expected stock price volatility of 26%, a risk free interest rate of 1.60%, an expected annual dividend per share of $0.82 and an expected option life of 5.48 years.
During the quarter ended December 26, 2014, the Company issued its annual share-based compensation grants. The total number of awards issued was approximately 2.4 million, of which 1.5 million were stock options, 0.4 million were restricted unit awards and 0.5 million were performance share unit awards. The weighted-average grant-date fair value of the stock options, restricted unit awards and performance share unit awards was $11.77, $43.38 and $42.95, respectively. The weighted-average assumptions used in the Black-Scholes option pricing model included an expected stock price volatility of 32%, a risk free interest rate of 1.83%, an expected annual dividend per share of $0.72 and an expected option life of 5.57 years.
The fair value of restricted stock units is determined based on the closing market price of the Company’s shares on the grant date. The fair value of performance share units is determined based on the Monte Carlo valuation model. The compensation expense recognized for all restricted share awards is net of estimated forfeitures.

33
TYCO INTERNATIONAL PLC
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


15.    Consolidated Segment Data
Effective for the first quarter of fiscal 2016, the Company elected to present operating income by segment, as well as Corporate and Other, excluding restructuring and repositioning charges, net. Restructuring and repositioning charges, net, are shown in aggregate. This presentation is consistent with how management reviews the businesses, makes investing and resource decisions and assesses operating performance. Comparative periods presented have been reclassified to conform with the current period presentation.
Selected information by segment is presented in the following tables ($ in millions):
 
For the Quarters Ended
 
For the Nine Months Ended
 
June 24, 2016
 
June 26, 2015
 
June 24, 2016
 
June 26, 2015
Net revenue(1):
 
 
 
 
 
 
 
NA Integrated Solutions & Services
$
1,004

 
$
972

 
$
2,904

 
$
2,867

ROW Integrated Solutions & Services
794

 
842

 
2,374

 
2,605

Global Products
651

 
675

 
1,878

 
1,925

 
$
2,449

 
$
2,489

 
$
7,156

 
$
7,397


(1) Net revenue by operating segment excludes intercompany transactions.
 
For the Quarters Ended
 
For the Nine Months Ended
 
June 24, 2016
 
June 26, 2015
 
June 24, 2016
 
June 26, 2015
Operating income:
 
 
 
 
 
 
 
NA Integrated Solutions & Services
$
148

 
$
157

 
$
411

 
$
411

ROW Integrated Solutions & Services
36

 
97

 
226

 
253

Global Products
115

 
113

 
313

 
332

    Segment operating income
299

 
367

 
950

 
996

Corporate and Other
(50
)
 
(49
)
 
(155
)
 
(154
)
Restructuring and repositioning charges, net
(13
)
 
(65
)
 
(41
)
 
(169
)
    Operating income
$
236

 
$
253

 
$
754

 
$
673

16.    Inventory
Inventories consisted of the following ($ in millions):
 
As of
 
June 24,
2016
 
September 25,
2015
Purchased materials and manufactured parts
$
181

 
$
165

Work in process
79

 
83

Finished goods
396

 
372

Inventories
$
656

 
$
620

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

34
TYCO INTERNATIONAL PLC
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


17.    Property, Plant and Equipment
Property, plant and equipment consisted of the following ($ in millions):
 
As of
 
June 24, 2016
 
September 25, 2015
Land
$
33

 
$
33

Buildings
433

 
403

Subscriber systems
1,720

 
1,916

Machinery and equipment
1,279

 
1,234

Construction in progress
107

 
81

Accumulated depreciation
(2,392
)
 
(2,501
)
Property, plant and equipment, net
$
1,180

 
$
1,166

18.    Guarantees
Certain of the Company's subsidiaries at the business segment level 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 and would typically be triggered in the event of nonperformance. 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 within the Company's Consolidated Balance Sheets as of both June 24, 2016 and September 25, 2015, 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 within the Company's Consolidated Balance Sheets as of both June 24, 2016 and September 25, 2015, with an offset to Tyco's shareholders' equity on the 2007 Separation date.
In disposing of assets or businesses, the Company or its subsidiaries 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, results of operations or cash flows. The Company has recorded liabilities for known indemnifications included as part of environmental liabilities. See Note 11 for further information on environmental matters.
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.

35
TYCO INTERNATIONAL PLC
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


The changes in the carrying amount of the Company's warranty accrual from September 25, 2015 to June 24, 2016 were as follows ($ millions):
Balance as of September 25, 2015
$
29

Warranties issued
6

Changes in estimates
(2
)
Settlements
(3
)
Balance as of June 24, 2016
$
30

Warranty accruals for businesses that are included in Liabilities held for sale within the Consolidated Balance Sheets are excluded from the table above. See Note 3.
19.    Guarantor Financial Statements
TIFSA, a 100% owned subsidiary of the Company, has public debt securities outstanding which are fully and unconditionally guaranteed by Tyco and by Tyco Fire & Security Finance SCA ("TIFSCA"), a wholly owned subsidiary of Tyco and parent company of TIFSA. The following tables present condensed consolidating financial information for Tyco, TIFSCA, TIFSA and all other subsidiaries. Condensed financial information for Tyco, TIFSCA and TIFSA on a stand-alone basis is presented using the equity method of accounting for subsidiaries.

36
TYCO INTERNATIONAL PLC
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
For the Quarter Ended June 24, 2016
($ in millions)
 
Tyco
International
plc
 
Tyco
Fire & Security
Finance SCA
 
Tyco
International
Finance S.A.
 
Other
Subsidiaries
 
Consolidating
Adjustments
 
Total
Net revenue
$
—

 
$
—

 
$
—

 
$
2,449

 
$
—

 
$
2,449

Cost of product sales
—

 
—

 
—

 
1,026

 
—

 
1,026

Cost of services
—

 
—

 
—

 
508

 
—

 
508

Selling, general and administrative expenses
1

 
—

 
1

 
665

 
—

 
667

Merger costs
2

 
—

 
1

 
4

 
—

 
7

Restructuring and asset impairment charges, net
—

 
—

 
—

 
5

 
—

 
5

Operating (loss) income
(3
)
 
—

 
(2
)
 
241

 
—

 
236

Interest income
—

 
—

 
—

 
3

 
—

 
3

Interest expense
—

 
—

 
(22
)
 
—

 
—

 
(22
)
Other income, net
—

 
—

 
54

 
—

 
—

 
54

Equity in net income of subsidiaries
225

 
220

 
169

 
—

 
(614
)
 
—

Intercompany interest and fees
17

 
—

 
21

 
(38
)
 
—

 
—

Income from continuing operations before income taxes
239

 
220

 
220

 
206

 
(614
)
 
271

Income tax expense
—

 
—

 
—

 
(31
)
 
—

 
(31
)
Income from continuing operations
239

 
220

 
220

 
175

 
(614
)
 
240

Loss from discontinued operations, net of income taxes
—

 
—

 
—

 
(2
)
 
—

 
(2
)
Net income
239

 
220

 
220

 
173

 
(614
)
 
238

Less: noncontrolling interest in subsidiaries net loss
—

 
—

 
—

 
(1
)
 
—

 
(1
)
Net income attributable to Tyco ordinary shareholders
$
239

 
$
220

 
$
220

 
$
174

 
$
(614
)
 
$
239


37
TYCO INTERNATIONAL PLC
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME
For the Quarter Ended June 24, 2016
($ in millions)
 
Tyco
International
plc
 
Tyco
Fire & Security
Finance SCA
 
Tyco
International
Finance S.A.
 
Other
Subsidiaries
 
Consolidating
Adjustments
 
Total
Net income
$
239

 
$
220

 
$
220

 
$
173

 
$
(614
)
 
$
238

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

 
—

 
(6
)
 
12

 
(6
)
 
6

Defined benefit and post retirement plans
5

 
—

 
—

 
5

 
(5
)
 
5

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

 
—

 
—

 
3

 
(3
)
 
3

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

 
—

 
(6
)
 
20

 
(14
)
 
14

Comprehensive income
253

 
220

 
214

 
193

 
(628
)
 
252

Less: comprehensive loss attributable to noncontrolling interests
—

 
—

 
—

 
(1
)
 
—

 
(1
)
Comprehensive income attributable to Tyco ordinary shareholders
$
253

 
$
220

 
$
214

 
$
194

 
$
(628
)
 
$
253



38
TYCO INTERNATIONAL PLC
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
For the Quarter Ended June 26, 2015
($ in millions)
 
Tyco
International
plc
 
Tyco
Fire & Security
Finance SCA
 
Tyco
International
Finance S.A.
 
Other
Subsidiaries
 
Consolidating
Adjustments
 
Total
Net revenue
$
—

 
$
—

 
$
—

 
$
2,489

 
$
—

 
$
2,489

Cost of product sales
—

 
—

 
—

 
1,025

 
—

 
1,025

Cost of services
—

 
—

 
—

 
548

 
—

 
548

Selling, general and administrative expenses
1

 
—

 
—

 
624

 
—

 
625

Restructuring and asset impairment charges, net

—

 
—

 
—

 
38

 
—

 
38

Operating (loss) income
(1
)
 
—

 
—

 
254

 
—

 
253

Interest income
—

 
—

 
—

 
4

 
—

 
4

Interest expense
—

 
—

 
(25
)
 
(1
)
 
—

 
(26
)
Other income, net
—

 
—

 
1

 
5

 
—

 
6

Equity in net income of subsidiaries
145

 
165

 
166

 
—

 
(476
)
 
—

Intercompany interest and fees
12

 
—

 
23

 
(35
)
 
—

 
—

Income from continuing operations before income taxes
156

 
165

 
165

 
227

 
(476
)
 
237

Income tax expense
—

 
—

 
—

 
(49
)
 
—

 
(49
)
Income from continuing operations
156

 
165

 
165

 
178

 
(476
)
 
188

Loss from discontinued operations, net of income taxes
—

 
—

 
—

 
(32
)
 
—

 
(32
)
Net income
156

 
165

 
165

 
146

 
(476
)
 
156

Less: noncontrolling interest in subsidiaries net loss
—

 
—

 
—

 
—

 
—

 
—

Net income attributable to Tyco ordinary shareholders
$
156

 
$
165

 
$
165

 
$
146

 
$
(476
)
 
$
156



39
TYCO INTERNATIONAL PLC
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME (LOSS)
For the Quarter Ended June 26, 2015
($ in millions)
 
Tyco
International
plc
 
Tyco
Fire & Security
Finance SCA
 
Tyco
International
Finance S.A.
 
Other
Subsidiaries
 
Consolidating
Adjustments
 
Total
Net income
$
156

 
$
165

 
$
165

 
$
146

 
$
(476
)
 
$
156

Other comprehensive income (loss), net of tax
 
 
 
 
 
 
 
 
 
 
 
Foreign currency translation
28

 
—

 
(12
)
 
40

 
(28
)
 
28

Defined benefit and post retirement plans
4

 
—

 
—

 
4

 
(4
)
 
4

Unrealized loss on marketable securities and derivative instruments, net of tax
(4
)
 
—

 
—

 
(4
)
 
4

 
(4
)
Total other comprehensive income (loss), net of tax
28

 
—

 
(12
)
 
40

 
(28
)
 
28

Comprehensive income
184

 
165

 
153

 
186

 
(504
)
 
184

Less: comprehensive income attributable to noncontrolling interests
—

 
—

 
—

 
—

 
—

 
—

Comprehensive income attributable to Tyco ordinary shareholders
$
184

 
$
165

 
$
153

 
$
186

 
$
(504
)
 
$
184


40
TYCO INTERNATIONAL PLC
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
For the Nine Months Ended June 24, 2016
($ in millions)
 
Tyco
International
plc
 
Tyco
Fire & Security
Finance SCA
 
Tyco
International
Finance S.A.
 
Other
Subsidiaries
 
Consolidating
Adjustments
 
Total
Net revenue
$
—

 
$
—

 
$
—

 
$
7,156

 
$
—

 
$
7,156

Cost of product sales
—

 
—

 
—

 
2,956

 
—

 
2,956

Cost of services
—

 
—

 
—

 
1,550

 
—

 
1,550

Selling, general and administrative expenses
5

 
—

 
2

 
1,835

 
—

 
1,842

Merger costs
2

 
—

 
11

 
20

 
—

 
33

Restructuring and asset impairment charges, net
—

 
—

 
—

 
21

 
—

 
21

Operating (loss) income
(7
)
 
—

 
(13
)
 
774

 
—

 
754

Interest income
—

 
—

 
—

 
11

 
—

 
11

Interest expense
—

 
—

 
(67
)
 
(1
)
 
—

 
(68
)
Other (expense) income, net

—

 
—

 
(112
)
 
1

 
—

 
(111
)
Equity in net income of subsidiaries
388

 
380

 
504

 
—

 
(1,272
)
 
—

Intercompany interest and fees
82

 
—

 
68

 
(150
)
 
—

 
—

Income from continuing operations before income taxes
463

 
380

 
380

 
635

 
(1,272
)
 
586

Income tax expense
(2
)
 
—

 
—

 
(128
)
 
—

 
(130
)
Income from continuing operations
461

 
380

 
380

 
507

 
(1,272
)
 
456

Income from discontinued operations, net of income taxes
—

 
—

 
—

 
3

 
—

 
3

Net income
461

 
380

 
380

 
510

 
(1,272
)
 
459

Less: noncontrolling interest in subsidiaries net loss
—

 
—

 
—

 
(2
)
 
—

 
(2
)
Net income attributable to Tyco ordinary shareholders
$
461

 
$
380

 
$
380

 
$
512

 
$
(1,272
)
 
$
461



41
TYCO INTERNATIONAL PLC
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME
For the Nine Months Ended June 24, 2016
($ in millions)
 
 
 
 
 
 
 
 
 
 
 
 
 
Tyco
International
plc
 
Tyco
Fire & Security
Finance SCA
 
Tyco
International
Finance S.A.
 
Other
Subsidiaries
 
Consolidating
Adjustments
 
Total
Net income
$
461

 
$
380

 
$
380

 
$
510

 
$
(1,272
)
 
$
459

Other comprehensive income (loss), net of tax
 
 
 
 
 
 
 
 
 
 
 
Foreign currency translation
7

 
—

 
(5
)
 
12

 
(7
)
 
7

Defined benefit and post retirement plans
13

 
—

 
—

 
13

 
(13
)
 
13

Unrealized gain on marketable securities and derivative instruments, net of tax
6

 
—

 
—

 
6

 
(6
)
 
6

Total other comprehensive income (loss), net of tax
26

 
—

 
(5
)
 
31

 
(26
)
 
26

Comprehensive income
487

 
380

 
375

 
541

 
(1,298
)
 
485

Less: comprehensive loss attributable to noncontrolling interests
—

 
—

 
—

 
(2
)
 
—

 
(2
)
Comprehensive income attributable to Tyco ordinary shareholders
$
487

 
$
380

 
$
375

 
$
543

 
$
(1,298
)
 
$
487


42
TYCO INTERNATIONAL PLC
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
For the Nine Months Ended June 26, 2015
($ in millions)
 
 
 
 
 
 
 
 
 
 
 
 
 
Tyco
International
plc
 
Tyco
Fire & Security Finance SCA
 
Tyco
International
Finance S.A.
 
Other
Subsidiaries
 
Consolidating
Adjustments
 
Total
Net revenue
$
—

 
$
—

 
$
—

 
$
7,397

 
$
—

 
$
7,397

Cost of product sales
—

 
—

 
—

 
3,046

 
—

 
3,046

Cost of services
—

 
—

 
—

 
1,645

 
—

 
1,645

Selling, general and administrative expenses
6

 
—

 
1

 
1,918

 
—

 
1,925

Restructuring and asset impairment charges, net
—

 
—

 
—

 
108

 
—

 
108

Operating (loss) income
(6
)
 
—

 
(1
)
 
680

 
—

 
673

Interest income
—

 
—

 
—

 
11

 
—

 
11

Interest expense
—

 
—

 
(73
)
 
(2
)
 
—

 
(75
)
Other income, net
—

 
—

 
3

 
6

 
—

 
9

Equity in net income of subsidiaries
440

 
456

 
453

 
—

 
(1,349
)
 
—

Intercompany interest and fees
51

 
—

 
74

 
(125
)
 
—

 
—

Income from continuing operations before income taxes
485

 
456

 
456

 
570

 
(1,349
)
 
618

Income tax expense
—

 
—

 
—

 
(86
)
 
—

 
(86
)
Income from continuing operations
485

 
456

 
456

 
484

 
(1,349
)
 
532

Loss from discontinued operations, net of income taxes
—

 
—

 
—

 
(50
)
 
—

 
(50
)
Net income
485

 
456

 
456

 
434

 
(1,349
)
 
482

Less: noncontrolling interest in subsidiaries net loss
—

 
—

 
—

 
(3
)
 
—

 
(3
)
Net income attributable to Tyco ordinary shareholders
$
485

 
$
456

 
$
456

 
$
437

 
$
(1,349
)
 
$
485




43
TYCO INTERNATIONAL PLC
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME
For the Nine Months Ended June 26, 2015
($ in millions)
 
 
 
 
 
 
 
 
 
 
 
 
 
Tyco
International
plc
 
Tyco
Fire & Security Finance SCA
 
Tyco
International
Finance S.A.
 
Other
Subsidiaries
 
Consolidating
Adjustments
 
Total
Net income
$
485

 
$
456

 
$
456

 
$
434

 
$
(1,349
)
 
$
482

Other comprehensive (loss) income, net of tax
 
 

 
 
 
 
 
 
 
 
Foreign currency translation
(346
)
 
—

 
3

 
(349
)
 
346

 
(346
)
Defined benefit and post retirement plans
13

 
—

 
—

 
13

 
(13
)
 
13

Unrealized loss on marketable securities and derivative instruments
(4
)
 
—

 
—

 
(4
)
 
4

 
(4
)
Total other comprehensive (loss) income, net of tax
(337
)
 
—

 
3

 
(340
)
 
337

 
(337
)
Comprehensive income
148

 
456

 
459

 
94

 
(1,012
)
 
145

Less: comprehensive loss attributable to noncontrolling interests
—

 
—

 
—

 
(3
)
 
—

 
(3
)
Comprehensive income attributable to Tyco ordinary shareholders
$
148

 
$
456

 
$
459

 
$
97

 
$
(1,012
)
 
$
148










44
TYCO INTERNATIONAL PLC
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


CONDENSED CONSOLIDATING BALANCE SHEET
As of June 24, 2016
($ in millions)
 
Tyco
International
plc
 
Tyco
Fire & Security
Finance SCA
 
Tyco
International
Finance S.A.
 
Other
Subsidiaries
 
Consolidating
Adjustments
 
Total
Assets
 
 
 
 
 
 
 
 
 
 
 
Current Assets:
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
—

 
$
—

 
$
—

 
$
345

 
$
—

 
$
345

Accounts receivable, net
—

 
—

 
—

 
1,805

 
—

 
1,805

Inventories
—

 
—

 
—

 
656

 
—

 
656

Intercompany receivables
10

 
—

 
553

 
7,750

 
(8,313
)
 
—

Prepaid expenses and other current assets
1

 
—

 
56

 
826

 
—

 
883

Deferred income taxes
—

 
—

 
—

 
62

 
—

 
62

Assets held for sale
—

 
—

 
—

 
71

 
—

 
71

Total Current Assets
11

 
—

 
609

 
11,515

 
(8,313
)
 
3,822

Property, plant and equipment, net
—

 
—

 
—

 
1,180

 
—

 
1,180

Goodwill
—

 
—

 
—

 
4,418

 
—

 
4,418

Intangible assets, net
—

 
—

 
—

 
966

 
—

 
966

Investment in subsidiaries
11,339

 
11,581

 
16,569

 
—

 
(39,489
)
 
—

Intercompany loans receivable
—

 
—

 
13,987

 
16,166

 
(30,153
)
 
—

Other assets
—

 
—

 
21

 
1,207

 
—

 
1,228

Total Assets
$
11,350

 
$
11,581

 
$
31,186

 
$
35,452

 
$
(77,955
)
 
$
11,614

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

 
$
—

 
$
341

 
$
—

 
$
—

 
$
341

Accounts payable
1

 
—

 
—

 
798

 
—

 
799

Accrued and other current liabilities
90

 
—

 
61

 
1,413

 
—

 
1,564

Deferred revenue
—

 
—

 
—

 
378

 
—

 
378

Intercompany payables
3,736

 
—

 
4,023

 
554

 
(8,313
)
 
—

Liabilities held for sale
—

 
—

 
—

 
34

 
—

 
34

Total Current Liabilities
3,827

 
—

 
4,425

 
3,177

 
(8,313
)
 
3,116

Long-term debt
—

 
—

 
2,164

 
1

 
—

 
2,165

Intercompany loans payable
3,172

 
—

 
12,994

 
13,987

 
(30,153
)
 
—

Deferred revenue
—

 
—

 
—

 
284

 
—

 
284

Other liabilities
—

 
—

 
22

 
1,641

 
—

 
1,663

Total Liabilities
6,999

 
—

 
19,605

 
19,090

 
(38,466
)
 
7,228

Tyco Shareholders' Equity:
 
 
 
 
 
 
 
 
 
 
 
Ordinary shares
4

 
—

 
—

 
—

 
—

 
4

Ordinary shares held in treasury
(15
)
 
—

 
—

 
—

 
—

 
(15
)
Other shareholders' equity
4,362

 
11,581

 
11,581

 
16,327

 
(39,489
)
 
4,362

Total Tyco Shareholders' Equity
4,351

 
11,581

 
11,581

 
16,327

 
(39,489
)
 
4,351

Nonredeemable noncontrolling interest
—

 
—

 
—

 
35

 
—

 
35

Total Equity
4,351

 
11,581

 
11,581

 
16,362

 
(39,489
)
 
4,386

Total Liabilities and Equity
$
11,350

 
$
11,581

 
$
31,186

 
$
35,452

 
$
(77,955
)
 
$
11,614



45
TYCO INTERNATIONAL PLC
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


CONDENSED CONSOLIDATING BALANCE SHEET
As of September 25, 2015
($ in millions)
 
Tyco
International
plc
 
Tyco
Fire & Security
Finance SCA
 
Tyco
International
Finance S.A.
 
Other
Subsidiaries
 
Consolidating
Adjustments
 
Total
Assets
 
 
 
 
 
 
 
 
 
 
 
Current Assets:
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
—

 
$
—

 
$
—

 
$
1,401

 
$
—

 
$
1,401

Accounts receivable, net
—

 
—

 
—

 
1,722

 
—

 
1,722

Inventories
—

 
—

 
—

 
620

 
—

 
620

Intercompany receivables
15

 
—

 
332

 
6,508

 
(6,855
)
 
—

Prepaid expenses and other current assets
—

 
—

 
63

 
687

 
—

 
750

Deferred income taxes
—

 
—

 
—

 
62

 
—

 
62

Assets held for sale
—

 
—

 
—

 
208

 
—

 
208

Total Current Assets
15

 
—

 
395

 
11,208

 
(6,855
)
 
4,763

Property, plant and equipment, net
—

 
—

 
—

 
1,166

 
—

 
1,166

Goodwill
—

 
—

 
—

 
4,203

 
—

 
4,203

Intangible assets, net
—

 
—

 
—

 
822

 
—

 
822

Investment in subsidiaries
10,885

 
11,140

 
15,993

 
—

 
(38,018
)
 
—

Intercompany loans receivable
—

 
—

 
2,942

 
5,066

 
(8,008
)
 
—

Other assets
1

 
—

 
44

 
1,322

 
—

 
1,367

Total Assets
$
10,901

 
$
11,140

 
$
19,374

 
$
23,787

 
$
(52,881
)
 
$
12,321

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

 
$
—

 
$
967

 
$
20

 
$
—

 
$
987

Accounts payable
1

 
—

 
—

 
763

 
—

 
764

Accrued and other current liabilities
88

 
—

 
61

 
1,495

 
—

 
1,644

Deferred revenue
—

 
—

 
—

 
379

 
—

 
379

Intercompany payables
3,616

 
—

 
2,892

 
347

 
(6,855
)
 
—

Liabilities held for sale
—

 
—

 
—

 
80

 
—

 
80

Total Current Liabilities
3,705

 
—

 
3,920

 
3,084

 
(6,855
)
 
3,854

Long-term debt
—

 
—

 
2,158

 
1

 
—

 
2,159

Intercompany loans payable
3,155

 
—

 
1,911

 
2,942

 
(8,008
)
 
—

Deferred revenue
—

 
—

 
—

 
302

 
—

 
302

Other liabilities
—

 
—

 
245

 
1,685

 
—

 
1,930

Total Liabilities
6,860

 
—

 
8,234

 
8,014

 
(14,863
)
 
8,245

Tyco Shareholders' Equity:
 
 
 
 
 
 
 
 
 
 
 
Ordinary shares
4

 
—

 
—

 
—

 
—

 
4

Ordinary shares held in treasury
(3
)
 
—

 
—

 
—

 
—

 
(3
)
Other shareholders' equity
4,040

 
11,140

 
11,140

 
15,738

 
(38,018
)
 
4,040

Total Tyco Shareholders' Equity
4,041

 
11,140

 
11,140

 
15,738

 
(38,018
)
 
4,041

Nonredeemable noncontrolling interest
—

 
—

 
—

 
35

 
—

 
35

Total Equity
4,041

 
11,140

 
11,140

 
15,773

 
(38,018
)
 
4,076

Total Liabilities and Equity
$
10,901

 
$
11,140

 
$
19,374

 
$
23,787

 
$
(52,881
)
 
$
12,321




46
TYCO INTERNATIONAL PLC
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
For the Nine Months Ended June 24, 2016
($ in millions)
 
Tyco
International plc
 
Tyco
Fire & Security
Finance SCA
 
Tyco
International
Finance S.A.
 
Other
Subsidiaries
 
Consolidating
Adjustments
 
Total
Cash Flows From Operating Activities:
 
 
 
 
 
 
 
 
 
 
 
Net cash provided by (used in) operating activities
$
216

 
$
—

 
$
775

 
$
(487
)
 
$
—

 
$
504

Net cash used in discontinued operating activities
—

 
—

 
—

 
(12
)
 
—

 
(12
)
Cash Flows From Investing Activities:
 
 
 
 
 
 
 
 
 
 
 
Capital expenditures
—

 
—

 
—

 
(209
)
 
—

 
(209
)
Acquisition of businesses, net of cash acquired
—

 
—

 
—

 
(320
)
 
—

 
(320
)
Acquisition of dealer generated customer accounts and bulk account purchases
—

 
—

 
—

 
(17
)
 
—

 
(17
)
Divestiture of businesses, net of cash divested
—

 
—

 
—

 
14

 
—

 
14

Net decrease in intercompany loans
—

 
—

 
37

 
—

 
(37
)
 
—

Increase in investment in subsidiaries
—

 
—

 
(5
)
 
—

 
5

 
—

Sales and maturities of investments including restricted investments
—

 
—

 
7

 
19

 
—

 
26

Purchases of investments including restricted investments
—

 
—

 
—

 
(8
)
 
—

 
(8
)
Decrease in restricted cash
—

 
—

 
—

 
3

 
—

 
3

Net cash provided by (used in) investing activities
—

 
—

 
39

 
(518
)
 
(32
)
 
(511
)
Net cash provided by discontinued investing activities
—

 
—

 
—

 
4

 
—

 
4

Cash Flows From Financing Activities:
 
 
 
 
 
 
 
 
 
 
 
Proceeds from issuance of short-term debt
—

 
—

 
4,179

 
—

 
—

 
4,179

Repayment of short-term debt
—

 
—

 
(3,838
)
 
—

 
—

 
(3,838
)
Repayment of current portion of long-term debt
—

 
—

 
(1,134
)
 
—

 
—

 
(1,134
)
Proceeds from exercise of share options
57

 
—

 
—

 
—

 
—

 
57

Dividends paid
(261
)
 
—

 
—

 
—

 
—

 
(261
)
Net intercompany loan repayments
—

 
—

 
—

 
(37
)
 
37

 
—

Increase in equity from parent
—

 
—

 
—

 
5

 
(5
)
 
—

Transfer to discontinued operations
—

 
—

 
—

 
(8
)
 
—

 
(8
)
Payment of contingent consideration
—

 
—

 
—

 
(1
)
 
—

 
(1
)
Debt financing costs
—

 
—

 
(21
)
 
(2
)
 


 
(23
)
Other
(12
)
 
—

 
—

 
—

 
—

 
(12
)
Net cash used in financing activities
(216
)
 
—

 
(814
)
 
(43
)
 
32

 
(1,041
)
Net cash provided by discontinued financing activities
—

 
—

 
—

 
8

 
—

 
8

Effect of currency translation on cash
—

 
—

 
—

 
(8
)
 
—

 
(8
)
Net decrease in cash and cash equivalents
—

 
—

 
—

 
(1,056
)
 
—

 
(1,056
)
Cash and cash equivalents at beginning of period
—

 
—

 
—

 
1,401

 
—

 
1,401

Cash and cash equivalents at end of period
$
—

 
$
—

 
$
—

 
$
345

 
$
—

 
$
345


47
TYCO INTERNATIONAL PLC
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
For the Nine Months Ended June 26, 2015
($ in millions)
 
Tyco
International
plc
 
Tyco
Fire & Security
Finance SCA
 
Tyco
International
Finance S.A.
 
Other
Subsidiaries
 
Consolidating
Adjustments
 
Total
Cash Flows From Operating Activities:
 
 
 
 
 
 
 
 
 
 
 
Net cash provided by (used in) operating activities
$
94

 
$
—

 
$
(525
)
 
$
942

 
$
—

 
$
511

Net cash used in discontinued operating activities
—

 
—

 
—

 
(1
)
 
—

 
(1
)
Cash Flows From Investing Activities:
 
 
 
 
 
 
 
 
 
 
 
Capital expenditures
—

 
—

 
—

 
(183
)
 
—

 
(183
)
Acquisition of businesses, net of cash acquired
—

 
—

 
—

 
(525
)
 
—

 
(525
)
Acquisition of dealer generated customer accounts and bulk account purchases
—

 
—

 
—

 
(13
)
 
—

 
(13
)
Divestiture of businesses, net of cash divested

—

 
—

 
—

 
(1
)
 
—

 
(1
)
Net increase in intercompany loans
—

 
—

 
(41
)
 
—

 
41

 
—

Sales and maturities of investments including restricted investments
—

 
—

 
4

 
279

 
—

 
283

Purchases of investments including restricted investments
—

 
—

 
(1
)
 
(289
)
 
—

 
(290
)
Increase in restricted cash
—

 
—

 
—

 
(27
)
 
—

 
(27
)
Other
—

 
—

 
—

 
4

 
—

 
4

Net cash used in investing activities
—

 
—

 
(38
)
 
(755
)
 
41

 
(752
)
Net cash used in discontinued investing activities
—

 
—

 
—

 
(37
)
 
—

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

 
—

 
258

 
—

 
—

 
258

Repayment of short-term debt
—

 
—

 
(258
)
 
(1
)
 
—

 
(259
)
Proceeds from issuance of long-term debt
—

 
—

 
567

 
3

 
—

 
570

Proceeds from exercise of share options
63

 
—

 
—

 
7

 
—

 
70

Dividends paid
(237
)
 
—

 
—

 
—

 
—

 
(237
)
Repurchase of ordinary shares
—

 
—

 
—

 
(417
)
 
—

 
(417
)
Net intercompany loan borrowings 
83

 
—

 
—

 
(42
)
 
(41
)
 
—

Transfer to discontinued operations
—

 
—

 
—

 
(38
)
 
—

 
(38
)
Payment of contingent consideration
—

 
—

 
—

 
(23
)
 
—

 
(23
)
Debt financing costs
—

 
—

 
(5
)
 
—

 
—

 
(5
)
Other
(3
)
 
—

 
1

 
(19
)
 
—

 
(21
)
Net cash (used in) provided by financing activities
(94
)
 
—

 
563

 
(530
)
 
(41
)
 
(102
)
Net cash provided by discontinued financing activities
—

 
—

 
—

 
38

 
—

 
38

Effect of currency translation on cash
—

 
—

 
—

 
(18
)
 
—

 
(18
)
Net decrease in cash and cash equivalents
—

 
—

 
—

 
(361
)
 
—

 
(361
)
Cash and cash equivalents at beginning of period
—

 
—

 
—

 
892

 
—

 
892

Cash and cash equivalents at end of period
$
—

 
$
—

 
$
—

 
$
531

 
$
—

 
$
531


48
TYCO INTERNATIONAL PLC
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


20.    Subsequent Events
On July 21, 2016, the Company announced that it expects to close its merger with Johnson Controls, Inc. on September 2, 2016. In addition, the Company declared an accelerated dividend of $0.23 per ordinary share, payable on August 26, 2016, to shareholders of record on August 5, 2016.
The accelerated dividend is in addition to the regular third quarter dividend scheduled to be paid on August 17, 2016 to shareholders of record on July 22, 2016. This accelerated dividend pulls forward the quarterly dividend that Tyco would have declared in its fiscal fourth quarter, and is intended to align dividend payments made to shareholders of Tyco and Johnson Controls prior to the closing of the merger. Closing of the merger is contingent upon, among other things, the approval of proposals related to the merger by shareholders of each company. The special meetings for shareholders of Tyco and Johnson Controls are scheduled for August 17, 2016.


 



49

Item 2.    Management's Discussion and Analysis of Financial Condition and Results of Operations
Results of Operations
The following discussion and analysis of the Company's financial condition and results of operations should be read together with our unaudited Consolidated Financial Statements and the related notes included elsewhere in this Quarterly Report. This discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. The Company's actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors, including but not limited to those under the headings "Risk Factors" and "Forward-Looking Information".
Organization
The unaudited Consolidated Financial Statements include the consolidated results of Tyco International plc and its subsidiaries (hereinafter collectively referred to as "we", the "Company", "Tyco Ireland" or "Tyco"). The financial statements have been prepared in United States dollars ("USD"), in accordance with accounting principles generally accepted in the United States ("GAAP").
References to 2016 and 2015 are to Tyco's fiscal quarters ending June 24, 2016 and June 26, 2015, respectively, unless otherwise indicated. The Company has a 52- or 53-week fiscal year that ends on the last Friday in September. Fiscal 2016 is a 53-week year as compared with fiscal 2015, which was 52 weeks, with the additional week occurring in the fourth quarter of fiscal 2016. The Company's results for the quarters and nine months ended June 24, 2016 and June 26, 2015 both consisted of 13 weeks and 39 weeks, respectively.
We operate and report financial and operating information in the following three segments:
•
North America Integrated Solutions & Services ("NA Integrated Solutions & Services") designs, sells, installs, services and monitors integrated electronic security systems and integrated fire detection and suppression systems for commercial, industrial, retail, small business, institutional and governmental customers in North America.

•
Rest of World Integrated Solutions & Services ("ROW Integrated Solutions & Services") designs, sells, installs, services and monitors integrated electronic security systems and integrated 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 Integrated Solutions & Services segments.
We also provide general corporate services to our segments which are reported as a fourth, non-operating segment, Corporate and Other. References to the segment data are to the Company's continuing operations.
Certain prior period amounts have been reclassified to conform with the current period presentation.
Effective for the first quarter of fiscal 2016, the Company elected to present operating income by segment, as well as Corporate and Other, excluding restructuring and repositioning charges, net. Restructuring and repositioning charges, net, are shown in aggregate. This presentation is consistent with how management reviews the businesses, makes investing and resource decisions and assesses operating performance. See Note 15 to the unaudited Consolidated Financial Statements.
During the third quarter of fiscal 2016, the Company reclassified the assets and liabilities of a business it plans to sell as held for sale for all periods presented within the Consolidated Balance Sheets. As of June 24, 2016, assets of $71 million and liabilities of $34 million were reclassified as held for sale related to this business. The results of operations of this business in the ROW Integrated Solutions & Services segment are included in continuing operations, as the criteria to be presented as a discontinued operation were not satisfied. During the second quarter of fiscal 2016, the Company completed the sale of its Australian fire protection business, included in the ROW Integrated Solutions & Services segment. The assets and liabilities related to this business were classified as held for sale as of September 25, 2015. Its results of operations are included in continuing operations, as the criteria to be presented as a discontinued operation were not satisfied. See Note 3 to the unaudited Consolidated Financial Statements.

50

Recent Transactions
Proposed Merger with Johnson Controls, Inc.
On January 25, 2016, Tyco and Johnson Controls, Inc. ("Johnson Controls") announced that they had entered into a definitive merger agreement to combine Tyco and Johnson Controls and create a global leader in building products and technology, integrated solutions and energy storage. Under the terms of the agreement, which was unanimously approved by both companies’ Boards of Directors, Johnson Controls shareholders will own approximately 56% of the equity of the combined company and receive aggregate cash consideration of approximately $3.9 billion. Tyco shareholders will own approximately 44% of the equity of the combined company.
Under the terms of the proposed transaction, the businesses of Johnson Controls and Tyco will be combined under Tyco International plc, which will be renamed “Johnson Controls plc.” The companies expect that shares of the combined company will be listed on the New York Stock Exchange and trade under the “JCI” ticker. Upon the closing of the transaction, the combined company is expected to maintain Tyco’s Irish legal domicile and global headquarters in Cork, Ireland. The primary operational headquarters in North America for the combined company will be in Milwaukee, where Johnson Controls has been based.
Immediately prior to the merger, Tyco will effect a reverse stock split so that Tyco shareholders will receive a fixed exchange ratio of 0.955 shares for each of their existing Tyco shares. Johnson Controls shareholders may elect to receive either one share of the combined company for each of their Johnson Controls shares or cash equal to $34.88 per share. Elections by Johnson Controls shareholders are subject to proration such that an aggregate of approximately $3.9 billion cash is paid in the merger.
The completion of the transaction is subject to customary closing conditions, including regulatory approvals and approval by both Johnson Controls and Tyco shareholders. See Notes 1 and 2 to the unaudited Consolidated Financial Statements.
Tyco has entered into a senior unsecured term loan facility in the amount of $4 billion to finance the cash consideration for, and fees, expenses and costs incurred in connection with, the merger. In addition, the Company has entered into a revolving credit agreement in the amount of $1 billion, which is intended to replace Tyco's existing $1.5 billion revolving credit agreement. Tyco's ability to draw down on both the term loan facility and the new revolving credit agreement are contingent on the consummation of the merger with Johnson Controls. See Note 9 to the unaudited Consolidated Financial Statements.
Settlement with IRS
On January 15, 2016, Tyco entered into Stipulations of Settled Issues with the IRS intended to resolve all disputes related to the intercompany debt issues for the 1997 - 2000 audit cycle that were before the U.S. Tax Court at the time. The Stipulations of Settled Issues were contingent upon the IRS Appeals Division applying the same settlement to all intercompany debt issues on appeal for subsequent audit cycles (2001 - 2007). The tentative resolution was finalized on May 31, 2016. The final resolution covers all aspects of the controversy that were before the U.S. Tax Court and the Appeals Division of the IRS. In the second quarter of fiscal 2016, the Company paid $120 million to TE Connectivity and $2 million to Covidien, which was subsequently paid to the IRS, in connection with the resolution.
As a result of the final settlement, the Company assessed its remaining obligations under its tax sharing agreements. Based on the assessment performed, the Company reversed a portion of its shared tax obligation liabilities related to the 2007 and 2012 Tax Sharing Agreements, and recognized a gain of $54 million in Other income (expense), net within the Consolidated Statements of Operations for both the quarter and nine months ended June 24, 2016. The Company believes the remaining liabilities that it has recorded are sufficient to cover its future obligations under the Tax Sharing Agreements. See Note 6 to the unaudited Consolidated Financial Statements.
Acquisitions
During the first quarter of fiscal 2016, the Company made an additional investment of approximately $128 million in the Company's joint venture, Tyco UAE, with its local partner Suwaidi Engineering Group in the United Arab Emirates ("UAE"). Tyco UAE is a leading provider of fire, security and integrated solutions and services in the UAE and also has operations in Qatar and Oman. Effective with the date of this transaction, the Company consolidated 100% of Tyco UAE, which is recorded in the Company's ROW Integrated Solutions & Services segment. As a result of this transaction, the Company recorded a net gain of $111 million recorded in Selling, general and administrative expenses within the Company's Consolidated Statements of Operations. In addition, during the second quarter of fiscal 2016, the Company completed the acquisition of ShopperTrak, a leading global provider of retail consumer behavior insights and location-based analytics, for approximately $176 million in cash. The financial results of this business have been reported in the NA Integrated Solutions & Services and ROW Integrated Solutions & Services segments. See Note 5 to the unaudited Consolidated Financial Statements.

51

Divestitures
The Company continuously assesses the strategic fit of its various businesses and pursues the divestiture of certain businesses included within the Company's portfolio which do not align with the Company's long-term strategy. During the third quarter of fiscal 2016, the Company concluded that a business in the ROW Integrated Solutions & Services segment which it intends to sell met the criteria to be classified as held for sale, and recorded a loss of $59 million for the quarter and nine months ended June 24, 2016. During the second quarter of fiscal 2016, the Company completed the sale of its Australian fire protection business within its ROW Integrated Solutions & Services segment. As a result, the Company incurred a loss related to this sale of $74 million for the nine months ended June 24, 2016. The losses for both businesses were recorded in Selling, general and administrative expenses within the Company’s Consolidated Statements of Operations. See Note 3 to the unaudited Consolidated Financial Statements.
Long-term Debt Redemption and Repayment
On September 14, 2015, the Company and TIFSA announced the redemption of all of the outstanding $242 million aggregate principal amount of 7.0% notes due 2019 and $462 million aggregate principal amount of 6.875% notes due 2021. On October 14, 2015, TIFSA paid cash of $876 million to complete the redemption, resulting in a loss on extinguishment of $168 million that was recorded in Other income (expense), net within the Consolidated Statements of Operations during the first quarter of fiscal 2016. On October 15, 2015, the Company repaid at maturity $258 million aggregate principal amount of 3.375% notes. See Note 9 to the unaudited Consolidated Financial Statements.
Business Overview
We are a leading global provider of security products and services, fire detection and suppression products and services and life safety products. We utilize our extensive global footprint of approximately 900 locations, including manufacturing facilities, service and distribution centers, monitoring centers and sales offices, to provide solutions and localized expertise to our global customer base. We provide an extensive range of product and service offerings to over 3 million customers in more than 100 countries through multiple channels. Our revenues are broadly diversified across the United States and Canada (collectively “North America”); Central America and South America (collectively “Latin America”); Europe, the Middle East, and Africa (collectively “EMEA”) and the Asia-Pacific geographic areas. The following chart reflects our net revenue by geographic area for the nine months ended June 24, 2016.

52


Nine Months Ended June 24, 2016
Net Revenue by Geographic Area
Our end-use customers, to whom we may sell directly or through wholesalers, distributors, commercial builders or contractors, are also broadly diversified and include:
•
Commercial customers, including residential and commercial property developers, financial institutions, food service businesses and commercial enterprises;
•
Industrial customers, including companies in the oil and gas, power generation, mining, petrochemical and other industries;
•
Retail and small business customers, including international, regional and local consumer outlets, from national chains to specialty stores;
•
Institutional customers, including a broad range of healthcare facilities, academic institutions, museums and foundations;
•
Governmental customers, including federal, state and local governments, defense installations, mass transportation networks, public utilities and other government-affiliated entities and applications; and
•
Residential customers outside of North America, including owners of single family homes and local providers of a wide range of goods and services.
As a global business with a varied customer base and an extensive range of products and services, our operations and results are impacted by global, regional and industry specific factors, and by political factors. Our geographic diversity and the diversity in our customer base and our products and services has helped mitigate the impact of any one industry or the economy of any single country on our consolidated operating results, financial condition and cash flows. Due to the global nature of our business and the variety of our customers, products and services, no single factor is predominantly used to forecast Company results. Rather, management monitors a number of factors to develop expectations regarding future results, including the activity of key competitors and customers, order rates for longer lead time projects, and capital expenditure budgets and spending patterns of our customers. We also monitor trends throughout the commercial and residential fire and security

53

markets, including building codes and fire-safety standards. Our commercial installation businesses are impacted by trends in commercial construction starts, while our residential business, which is located outside of North America, is impacted by new housing starts.
Because we are a global business, with approximately 50% of our revenue generated outside of the United States, and because our financial statements are prepared in U.S. Dollars, the results of our operations are impacted by changes in foreign currency exchange rates. During fiscal 2016, the U.S. Dollar has remained strong against the currencies of most of the significant non-U.S. jurisdictions where we operate. The most significant impact on our results has been due to the strengthening of the U.S. Dollar as compared to the Euro and the Canadian Dollar, which has unfavorably impacted our revenue and operating income during fiscal 2015 and 2016.
In addition, the Company sells its products and services into the high-hazard, heavy industrial sector. Revenue from this market vertical is spread across each of the Company’s segments, with the most significant exposure in the United Kingdom in the ROW Integrated Solutions & Services segment and in the Fire Protection Products business in the Global Products segment. As a result of volatility in oil prices beginning in 2015, this market vertical has seen significant changes in spending patterns, in particular with respect to capital expenditures. The revenue tied to this market vertical was unfavorably impacted during fiscal 2015, and the weakness in this sector continued during fiscal 2016.
Results of Operations
Consolidated financial information is as follows:
 
For the Quarters Ended
 
For the Nine Months Ended
($ in millions)
June 24,
2016
 
June 26,
2015
 
June 24,
2016
 
June 26,
2015
Net revenue
$
2,449

 
$
2,489

 
$
7,156

 
$
7,397

Net revenue decline
(1.6
)%
 
N/A

 
(3.3
)%
 
N/A

Organic revenue growth
1.5
 %
 
N/A

 
0.2
 %
 
N/A

Segment operating income
$
299

 
$
367

 
$
950

 
$
996

Segment operating margin
12.2
 %
 
14.7
%
 
13.3
 %
 
13.5
%
Corporate and Other
$
(50
)
 
$
(49
)
 
$
(155
)
 
$
(154
)
Restructuring and repositioning charges, net
(13
)
 
(65
)
 
(41
)
 
(169
)
Operating income
236

 
253

 
754

 
673

Operating margin
9.6
 %
 
10.2
%
 
10.5
 %
 
9.1
%
Interest income
$
3

 
$
4

 
$
11

 
$
11

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

 
6

 
(111
)
 
9

Income tax expense
(31
)
 
(49
)
 
(130
)
 
(86
)
Income from continuing operations attributable to Tyco ordinary shareholders
241

 
188

 
458

 
535

Net Revenue
Net revenue for the quarter ended June 24, 2016 decreased by $40 million, or 1.6%, to $2,449 million as compared to net revenue of $2,489 million for the quarter ended June 26, 2015. Changes in foreign currency exchange rates had an unfavorable impact of $63 million, or 2.5%, on net revenue, primarily in our ROW Integrated Solutions & Services segment, and to a lesser extent, in our Global Products segment. In addition, divestitures had an unfavorable impact of $84 million, or 3.4%, primarily in the ROW Integrated Solutions & Services segment. On an organic basis, net revenue increased by $37 million, or 1.5%, year over year, primarily as a result of growth in our NA and ROW Integrated Solutions & Services segments, partially offset by a small decline in our Global Products segment. Net revenue was favorably impacted by acquisitions that contributed $70 million, or 2.8%, primarily within our ROW Integrated Solutions & Services segment, and to a lesser extent, in our NA Integrated Solutions & Services segment.
Net revenue for the nine months ended June 24, 2016 decreased by $241 million, or 3.3%, to $7,156 million as compared to net revenue of $7,397 million for the nine months ended June 26, 2015. Changes in foreign currency exchange rates had an unfavorable impact of $316 million, or 4.3%, on net revenue in all three segments, but primarily in our ROW Integrated Solutions & Services segment. In addition, divestitures had an unfavorable impact of $172 million, or 2.3% primarily in the ROW Integrated Solutions & Services segment. On an organic basis, net revenue increased by $16 million, or 0.2%, year over

54

year, primarily as a result of growth in our NA Integrated Solutions & Services segment, partially offset by declines in our Global Products and, to a lesser extent, ROW Integrated Solutions & Services segments. Net revenue was favorably impacted by acquisitions that contributed $231 million, or 3.1%, primarily within our ROW Integrated Solutions & Services and Global Products segments.
Cost of Revenue and Selling, General & Administrative ("SG&A")
The significant components of cost of product sales include material costs, labor and overhead costs, product shipping and warehousing costs. The significant components of cost of services include labor and employee related costs, depreciation expense, costs associated with our equipment and fleet of vehicles, telecommunication costs and material costs. The significant components of SG&A include compensation and compensation related costs, facility and maintenance expenses and professional fees. SG&A for the quarter ended June 24, 2016 also includes divestiture charges, net of $38 million. SG&A for the nine months ended June 24, 2016 includes a net gain on an equity investment of $111 million, partially offset by divestiture charges, net, of $107 million. See Notes 3 and 5 to the unaudited Consolidated Financial Statements.
Merger Costs
The Company incurred merger costs of $19 million and $45 million for the quarter and nine months ended June 24, 2016, respectively, in connection with the proposed merger with Johnson Controls. These costs primarily relate to financing, advisory, and professional fees. See Note 2 to the unaudited Consolidated Financial Statements.
Restructuring and Repositioning Charges, Net    
The Company continues to identify and pursue opportunities for cost savings through restructuring activities and workforce reductions to improve operating efficiencies across the Company's businesses and corporate functions. Accordingly, 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 fiscal 2015, the Company recorded restructuring and repositioning charges of $289 million, of which $65 million and $169 million were recorded during the quarter and nine months ended June 26, 2015, respectively. The Company recorded restructuring and repositioning charges, net of $13 million and $41 million during the quarter and nine months ended June 24, 2016, respectively. See Note 4 to the unaudited Consolidated Financial Statements.
Operating Income
Operating income for the quarter ended June 24, 2016 decreased by $17 million, or 6.7%, to $236 million, as compared to operating income of $253 million for the quarter ended June 26, 2015. The decrease in operating income was primarily due to an increase in divestiture charges, net of $42 million primarily due to the write-down to fair value of a business in our ROW Integrated Solutions & Services segment that we plan to sell. The decrease is also due to merger costs of $19 million related to the proposed merger with Johnson Controls and the unfavorable impact of foreign currency exchange rates of $10 million, or 4.0%. These decreases are partially offset by a $52 million decrease in restructuring and repositioning charges, net.
Operating income for the nine months ended June 24, 2016 increased by $81 million, or 12.0%, to $754 million, as compared to operating income of $673 million for the nine months ended June 26, 2015. In connection with the additional investment in our UAE joint venture, we recorded a net gain of $111 million within Selling, general and administrative expenses relating to the Company's previously held equity method investment in the joint venture. See Note 5 to the unaudited Consolidated Financial Statements. Operating income also increased due to a $128 million reduction in restructuring and repositioning charges, net, and a $10 million increase in legacy legal gains. Operating income also benefited from previous productivity initiatives. These items were partially offset by an increase of $88 million of divestiture charges, net, primarily related to the loss on the sale of our Australian fire protection business and the write-down to fair value of another ROW Integrated Solutions & Services business that we plan to sell, as well as $45 million in merger costs related to the proposed merger with Johnson Controls. See Notes 2 and 3 to the unaudited Consolidated Financial Statements. Changes in foreign currency exchange rates also had an unfavorable impact on operating income of $35 million, or 5.2%.

55

Key items impacting operating income for the quarters and nine months ended June 24, 2016 and June 26, 2015, respectively, are as follows:
 
For the Quarters Ended
 
For the Nine Months Ended
($ in millions)
June 24,
2016
 
June 26,
2015
 
June 24,
2016
 
June 26,
2015
Gain on equity investment, net
$
—

 
$
—

 
$
(111
)
 
$
—

Legacy legal losses (gains)
1

 
(2
)
 
(18
)
 
(8
)
Divestiture charges (gains), net
38

 
(4
)
 
107

 
19

Restructuring and repositioning charges, net
13

 
65

 
41

 
169

Merger costs
19

 
—

 
45

 
—

Acquisition and integration costs
5

 
2

 
9

 
4

Unfavorable impact of foreign currency
10

 
N/A

 
35

 
N/A

Interest Income and Expense
Interest income was $3 million and $4 million for the quarters ended June 24, 2016 and June 26, 2015, respectively. Interest income was $11 million for both the nine months ended June 24, 2016 and June 26, 2015.
Interest expense was $22 million and $26 million for the quarters ended June 24, 2016 and June 26, 2015, respectively. Interest expense was $68 million and $75 million for the nine months ended June 24, 2016 and June 26, 2015, respectively. The decrease in interest expense for both periods was due to the impact of the debt refinancing during the first quarter of fiscal 2016. See Note 9 to the unaudited Consolidated Financial Statements.
Other Income (Expense), net
Significant components of other income (expense), net for the quarters and nine months ended June 24, 2016 and June 26, 2015 are as follows:
 
For the Quarters Ended
 
For the Nine Months Ended
($ in millions)
June 24,
2016
 
June 26,
2015
 
June 24,
2016
 
June 26,
2015
Loss on extinguishment of debt (see Note 9 to the unaudited Consolidated Financial Statements)
$
—

 
$
—

 
$
(168
)
 
$
—

2012 Tax Sharing Agreement gain (loss) (see Note 6 to the unaudited Consolidated Financial Statements)
32

 
—

 
32

 
(2
)
2007 Tax Sharing Agreement gain (see Note 6 to the unaudited Consolidated Financial Statements)
22

 
—

 
22

 
—

Equity investment income
—

 
5
 
—

 
5
Other
—

 
1
 
3

 
6
 
$
54

 
$
6

 
$
(111
)
 
$
9

Effective Income Tax Rate
Our effective income tax rate was 11.4% and 20.7% during the quarters ended June 24, 2016 and June 26, 2015, respectively. The decrease in our effective tax rate in the current period was primarily due to the favorable impact from the release of certain Tax Sharing Agreement liabilities and unrecognized tax benefits related to the favorable resolution of the intercompany debt issue. See Note 6 to the unaudited Consolidated Financial Statements. These favorable items were offset by the impact of an impairment for a held for sale business in our ROW Integrated Solutions & Services segment, and from merger costs, which are not expected to generate a tax benefit.
Our effective income tax rate was 22.2% and 13.9% during the nine months ended June 24, 2016 and June 26, 2015, respectively. The increase in our effective tax rate in the current period in addition to the items listed above was primarily due to tax charges in connection with the divestiture of the Australian Fire Protection business and a non-recurring loss on debt extinguishment for which the related deferred tax benefits will not be realized. The prior period was favorably impacted by a decrease in valuation allowances on the basis of management's reassessment of the amount of its deferred tax assets that are more likely than not to be realized resulting from the impact of restructuring actions and tax law changes in a non-U.S. jurisdiction.

56

The rate can vary from quarter to quarter due to discrete items, such as the settlement of income tax audits and changes in tax laws, as well as recurring factors such as the geographic mix of income before taxes.  The Company has operations and a taxable presence in nearly 60 countries outside the U.S.  All of these countries have a tax rate that is lower than the rate in the U.S.  The countries in which the Company has a material presence that have lower tax rates compared to the U.S. include Canada, Australia, Ireland, Germany, Switzerland and the United Kingdom.  The Company's ability to obtain a benefit from lower tax rates outside the U.S. is dependent on its relative levels of income in countries outside the U.S. and on the statutory tax rates and tax laws in these countries.  Based on the dispersion of the Company's non-U.S. income and management’s assessment of the likelihood and magnitude of any potential change to statutory tax rates or tax laws affecting the Company, any such changes are not expected to materially affect the Company's income tax provision or net income, aside from any one-time adjustment to reflect the impact of the change in the tax rate to the Company's deferred tax balances. 
Segment Results
The following chart reflects our net revenue by operating segment, as well as the percent of net revenue by operating segment, for the quarters and nine months ended June 24, 2016 and June 26, 2015, respectively.
The segment discussions that follow describe the significant factors contributing to the changes in results for each of our segments included in continuing operations.
NA Integrated Solutions & Services
Financial information for NA Integrated Solutions & Services for the quarters and nine months ended June 24, 2016 and June 26, 2015 is as follows:
 
For the Quarters Ended
 
For the Nine Months Ended
($ in millions)
June 24,
2016
 
June 26,
2015
 
June 24,
2016
 
June 26,
2015
Net revenue
$
1,004

 
$
972

 
$
2,904

 
$
2,867

Net revenue growth
3.3
%
 
N/A

 
1.3
%
 
N/A

Organic revenue growth
2.5
%
 
N/A

 
1.5
%
 
N/A

Segment operating income
$
148

 
$
157

 
$
411

 
$
411

Segment operating margin
14.7
%
 
16.2
%
 
14.2
%
 
14.3
%

57

Net Revenue
The change in net revenue compared to the prior periods is attributable to the following:
Factors Contributing to Year-Over-Year Change
 
Third Quarter
Fiscal 2016
Compared to
Third Quarter
Fiscal 2015
 
Year to Date
Fiscal 2016
Compared to
Year to Date
Fiscal 2015
Organic revenue growth
 
$
24

 
$
43

Acquisitions
 
13

 
25

Impact of foreign currency
 
(5
)
 
(31
)
Total change
 
$
32

 
$
37

Net revenue increased $32 million, or 3.3%, to $1,004 million for the quarter ended June 24, 2016 as compared to $972 million for the quarter ended June 26, 2015. On an organic basis, net revenue grew by $24 million, or 2.5%, from the comparable quarter, with growth driven by both integrated solutions and service revenue. Net revenue was also favorably impacted by $13 million, or 1.3%, due to acquisitions, primarily related to the ShopperTrak acquisition that closed in the second quarter of fiscal 2016. Changes in foreign currency exchange rates unfavorably impacted net revenue by $5 million, or 0.5%.
Net revenue increased $37 million, or 1.3%, to $2,904 million for the nine months ended June 24, 2016 as compared to $2,867 million for the nine months ended June 26, 2015. On an organic basis, net revenue grew by $43 million, or 1.5%, from the comparable period, with growth in both integrated solutions and service revenue, and in particular, in the retail, commercial and institutional vertical markets. Net revenue was also favorably impacted by $25 million, or 0.9%, primarily due to the ShopperTrak acquisition and several acquisitions made during fiscal 2015. Changes in foreign currency exchange rates unfavorably impacted net revenue by $31 million, or 1.1%.
Segment Operating Income
Segment operating income for the quarter ended June 24, 2016 decreased $9 million, or 5.7%, to $148 million, as compared to segment operating income of $157 million for the quarter ended June 26, 2015. Operating income was unfavorably impacted by the higher mix of installation revenue and higher amortization expense related to recent acquisitions.
Segment operating income was $411 million for both the nine months ended June 24, 2016 and June 26, 2015. Operating income was favorably impacted by the benefit of previous productivity initiatives, offset by higher amortization expense related to recent acquisitions.
ROW Integrated Solutions & Services
Financial information for ROW Integrated Solutions & Services for the quarters and nine months ended June 24, 2016 and June 26, 2015 is as follows:
 
For the Quarters Ended
 
For the Nine Months Ended
($ in millions)
June 24,
2016
 
June 26,
2015
 
June 24,
2016
 
June 26,
2015
Net revenue
$
794

 
$
842

 
$
2,374

 
$
2,605

Net revenue decline
(5.7
)%
 
N/A

 
(8.9
)%
 
N/A

Organic revenue growth (decline)
1.9
 %
 
N/A

 
(0.1
)%
 
N/A

Segment operating income
$
36

 
$
97

 
$
226

 
$
253

Segment operating margin
4.5
 %
 
11.5
%
 
9.5
 %
 
9.7
%

58

Net Revenue
The change in net revenue compared to the prior periods is attributable to the following:
Factors Contributing to Year-Over-Year Change
 
Third Quarter
Fiscal 2016
Compared to
Third Quarter
Fiscal 2015
 
Year to Date
Fiscal 2016
Compared to
Year to Date
Fiscal 2015
Organic revenue growth (decline)
 
$
15

 
$
(3
)
Acquisitions
 
57

 
150

Divestitures
 
(72
)
 
(156
)
Impact of foreign currency
 
(48
)
 
(222
)
Total change
 
$
(48
)
 
$
(231
)
Net revenue decreased $48 million, or 5.7%, to $794 million for the quarter ended June 24, 2016 as compared to $842 million for the quarter ended June 26, 2015. Changes in foreign currency exchange rates unfavorably impacted net revenue by $48 million, or 5.7%. On an organic basis, net revenue increased by $15 million, or 1.9%, driven by growth in growth markets and Continental Europe due to an increase in service and integrated solutions revenue, partially offset by declines within the United Kingdom driven by pressure within the high-hazard, heavy industrial sector. In addition, divestitures primarily in the Pacific region had an unfavorable impact of $72 million, or 8.6%. Net revenue was favorably impacted by $57 million, or 6.8%, due to acquisitions primarily within growth markets and retail solutions.
Net revenue decreased $231 million, or 8.9%, to $2,374 million for the nine months ended June 24, 2016 as compared to $2,605 million for the nine months ended June 26, 2015. Changes in foreign currency exchange rates unfavorably impacted net revenue by $222 million, or 8.5%. On an organic basis, net revenue declined by $3 million, or 0.1%, primarily in the Pacific region, Asia and the United Kingdom as a result of pressure within the high-hazard, heavy industrial sector partially offset by growth in our growth markets and Continental Europe primarily due to growth in both service and integrated solutions revenue. In addition, divestitures in the Pacific region and Asia had an unfavorable impact of $156 million, or 6.0%. Net revenue was favorably impacted by $150 million, or 5.8%, due to acquisitions primarily within growth markets and retail solutions.
Segment Operating Income
Segment operating income for the quarter ended June 24, 2016 decreased $61 million, or 62.9%, to $36 million as compared to segment operating income of $97 million for the quarter ended June 26, 2015. Segment operating income decreased primarily due to an increase in divestiture charges, net of $57 million, the unfavorable impact of changes in foreign currency exchange rates of $8 million, or 8.2%, and higher amortization expense primarily due to recent acquisitions. These decreases are partially offset by revenue growth, improved execution and the benefit of previous productivity initiatives.
Segment operating income for the nine months ended June 24, 2016 decreased $27 million, or 10.7%, to $226 million as compared to segment operating income of $253 million for the nine months ended June 26, 2015. Segment operating income decreased primarily due to an increase in divestiture charges, net, of $106 million, primarily related to the loss on sale of our Australian fire protection business and the write-down to fair value of another ROW Integrated Solutions & Services business that we plan to sell. See Note 3 to the unaudited Consolidated Financial Statements. In addition, changes in foreign currency exchange rates had an unfavorable impact on segment operating income of $26 million, or 10.3%. In connection with the additional investment in our UAE joint venture, we recorded a net gain of $111 million within Selling, general and administrative expenses relating to the Company's previously held equity method investment in the joint venture. See Note 5 to the unaudited Consolidated Financial Statements. To a lesser extent, segment operating income increased due to the benefit of previous productivity initiatives.
Key items impacting segment operating income for the quarters and nine months ended June 24, 2016 and June 26, 2015, respectively, are as follows:
 
For the Quarters Ended
 
For the Nine Months Ended
($ in millions)
June 24,
2016
 
June 26,
2015
 
June 24,
2016
 
June 26,
2015
Divestiture charges (gains), net
$
52

 
$
(5
)
 
$
124

 
$
18

Gain on equity investment, net
—

 
—

 
(111
)
 
—

Unfavorable impact of foreign currency
8

 
N/A

 
26

 
N/A


59

Global Products
Financial information for Global Products for the quarters and nine months ended June 24, 2016 and June 26, 2015 is as follows:
 
For the Quarters Ended
 
For the Nine Months Ended
($ in millions)
June 24,
2016
 
June 26,
2015
 
June 24,
2016
 
June 26,
2015
Net revenue
$
651

 
$
675

 
$
1,878

 
$
1,925

Net revenue decline
(3.6
)%
 
N/A

 
(2.4
)%
 
N/A

Organic revenue decline
(0.3
)%
 
N/A

 
(1.3
)%
 
N/A

Segment operating income
$
115

 
$
113

 
$
313

 
$
332

Segment operating margin
17.7
 %
 
16.7
%
 
16.7
 %
 
17.2
%
Net Revenue
The change in net revenue compared to the prior periods is attributable to the following:
Factors Contributing to Year-Over-Year Change
 
Third Quarter
Fiscal 2016
Compared to
Third Quarter
Fiscal 2015
 
Year to Date
Fiscal 2016
Compared to
Year to Date
Fiscal 2015
Organic revenue decline
 
$
(2
)
 
$
(24
)
Acquisitions
 
—

 
56

Divestitures
 
(12
)
 
(16
)
Impact of foreign currency
 
(10
)
 
(63
)
Total change
 
$
(24
)
 
$
(47
)
Net revenue decreased $24 million, or 3.6%, to $651 million for the quarter ended June 24, 2016 as compared to $675 million for the quarter ended June 26, 2015. On an organic basis, net revenue declined by $2 million, or 0.3%. Divestitures in our fire protection products business had an unfavorable impact of $12 million, or 1.8%. Net revenue was also unfavorably impacted by changes in foreign currency exchange rates of $10 million, or 1.5%.
Net revenue decreased $47 million, or 2.4%, to $1,878 million for the nine months ended June 24, 2016 as compared to $1,925 million for the nine months ended June 26, 2015. On an organic basis, net revenue declined by $24 million, or 1.3%, driven by the timing of increased shipments of Scott Air-Paks in our life safety business in the comparable period in the prior year, and to a lesser extent, our fire products business, partially offset by organic growth in our security products business. Divestitures, primarily in our fire protection products business, had an unfavorable impact of $16 million, or 0.8%. Net revenue was unfavorably impacted by changes in foreign currency exchange rates of $63 million, or 3.3%. Net revenue was favorably impacted during the nine months ended June 24, 2016 by $56 million, or 2.9%, from acquisitions, primarily related to the Industrial Safety Technologies acquisition within our life safety business in fiscal 2015.
Segment Operating Income
Segment operating income for the quarter ended June 24, 2016 increased by $2 million, or 1.8% to $115 million, as compared to segment operating income of $113 million for the quarter ended June 26, 2015. Segment operating income was favorably impacted by the benefit of previous productivity initiatives, partially offset by unfavorable revenue mix.
Segment operating income for the nine months ended June 24, 2016 decreased by $19 million, or 5.7% to $313 million, as compared to segment operating income of $332 million for the nine months ended June 26, 2015. Segment operating income decreased due to revenue mix and the decline in revenue. In addition, changes in foreign currency exchange rates had an unfavorable impact on segment operating income of $6 million, or 1.8%. These decreases were partially offset by the benefit of previous productivity initiatives.
Corporate and Other
Corporate expense, excluding restructuring and repositioning charges, net, was $50 million and $49 million for the quarters ended June 24, 2016 and June 26, 2015, respectively. Corporate expense for the current quarter includes merger costs of $19 million related to the proposed merger with Johnson Controls, partially offset by a $13 million divestiture gain, and the benefit of productivity initiatives and cost containment actions.

60

Corporate expense, excluding restructuring and repositioning charges, net, was $155 million and $154 million for the nine months ended June 24, 2016 and June 26, 2015, respectively. Corporate expense for the nine months of fiscal 2016 includes merger costs of $45 million related to the proposed merger with Johnson Controls, partially offset by a $16 million divestiture gain, a $9 million increase in legacy legal gains and the benefit of productivity initiatives and cost containment actions.
Key items included in corporate expense for the quarters and nine months ended June 24, 2016 and June 26, 2015, respectively, are as follows:
 
For the Quarters Ended
 
For the Nine Months Ended
($ in millions)
June 24,
2016
 
June 26,
2015
 
June 24,
2016
 
June 26,
2015
Merger costs
$
19

 
$
—

 
$
45

 
$
—

Divestiture gains, net
(13
)
 
—

 
(16
)
 
—

Legacy legal losses (gains)
1

 
(2
)
 
(18
)
 
(9
)
Critical Accounting Policies and Estimates
The preparation of the unaudited Consolidated Financial Statements in conformity with U.S. GAAP requires management to use judgment in making estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities and the reported amounts of revenue and expenses. We believe that our accounting policies for depreciation and amortization methods of security monitoring-related assets, revenue recognition, loss contingencies, income taxes, goodwill and indefinite-lived intangible assets, long-lived assets and pension and postretirement benefits are based on, among other things, judgments and assumptions made by management that include inherent risks and uncertainties.
Effective September 26, 2015, we changed the approach used to measure service and interest costs for pension benefits. For fiscal 2016, we elected to measure service and interest costs by applying the specific spot rates along the yield curve over the projected cash flow period. Management believes the new approach provides a more precise measurement of service and interest costs by improving the correlation between projected benefit cash flows to the corresponding spot rates on the yield curves. We have accounted for this change as a change in accounting estimate and, accordingly, have accounted for it on a prospective basis. See Note 12 to the unaudited Consolidated Financial Statements.
Other than the change in approach with respect to pension benefits, during fiscal 2016, there have been no significant changes to the Company's accounting policies or in the underlying accounting assumptions and estimates used in the above critical accounting policies from those disclosed in the Consolidated Financial Statements and accompanying notes contained in the Company's Annual Report on Form 10-K filed with the SEC on November 13, 2015 for the fiscal year ended September 25, 2015. See Note 1 to the unaudited Consolidated Financial Statements for recently issued and adopted accounting standards.
Liquidity and Capital Resources
A fundamental objective of the Company is to have sufficient liquidity, balance sheet strength, and financial flexibility to fund the operating and capital requirements of its core businesses around the world.
The primary source of funds to finance our operations and capital expenditures is cash generated by operations. In addition, we maintain a $1.5 billion commercial paper program, backed up by a committed revolving credit facility, and have access to equity and debt capital from public and private sources. We continue to balance our operating, investing, and financing uses of cash through investments and acquisitions in our core businesses, dividends, and share repurchases. In addition, we believe our available cash, amounts available under our credit facility, commercial paper program and cash provided by operating activities will be adequate to cover our operational, capital and other business needs in the foreseeable future. To the extent it is necessary for us to finance our cash needs through the issuance of commercial paper, by accessing our committed revolving credit facility, or through other public or private sources, our cost of funding may increase depending on market conditions at the time of such borrowing.
Additionally, the Company has entered into a senior unsecured term loan facility in the amount of $4 billion to finance the cash consideration for, and fees, expenses and costs incurred in connection with, the merger. In addition, the Company has entered into a revolving credit agreement in the amount of $1 billion, which is intended to replace the Company's existing $1.5 billion revolving credit agreement. Tyco's ability to draw down on both the term loan facility and the new revolving credit agreement is contingent on the consummation of the merger with Johnson Controls. See Note 9 to the unaudited Consolidated Financial Statements.

61

As of June 24, 2016 and September 25, 2015, our cash and cash equivalents, short- and long-term debt at carrying value, and Tyco shareholder's equity are as follows:
 
As of
 
Credit Availability as of
($ in millions)
June 24,
2016
 
September 25,
2015
 
June 24,
2016 (2)
Cash and cash equivalents
$
345

 
$
1,401

 
$
—

Total debt (excluding revolving credit facility)
2,506

 
3,146

 
—

Revolving credit facility
—

 
—

 
1,500

Total Tyco shareholders' equity
4,351

 
4,041

 
—

Total debt as a % of total capital (1)
36.5
%
 
43.8
%
 
N/A

(1) Total capital represents the aggregate amount of total debt and total shareholders' equity which was $6,857 million and $7,187 million as of June 24, 2016 and September 25, 2015, respectively.
(2) Excludes amounts available under merger related debt financing as described above.
Significant uses of capital that are expected in the near- to mid-term include expenditures for (i) capital expenditures and dealer investments in annual amounts expected to approximate 3% to 3.5% of total revenues, (ii) the funding of potential tax liabilities or settlements (see Note 6 to the unaudited Consolidated Financial Statements), including with respect to the divestiture of our ADT Korea business, (iii) estimated restructuring payments, of which $96 million has been accrued as a current liability as of June 24, 2016 (see Note 4 to the unaudited Consolidated Financial Statements), (iv) quarterly dividend payments, of which $87 million has been accrued as of June 24, 2016 (see Note 13 to the unaudited Consolidated Financial Statements), and (v) merger related items. The Company intends to fund these capital uses through a combination of available cash, cash generated from operations, borrowing in the commercial paper market or under its revolving credit facility, and borrowing in public or private markets for debt securities. In addition, the Company intends, in its discretion, to pursue strategically important acquisitions, may repurchase its shares from time to time and may engage in other capital market activities, in each case depending on a number of factors, including the Company’s strategic priorities, its financial condition and results of operations, the capital requirements of the Company’s businesses, industry and capital markets factors and other relevant factors.
Sources and uses of cash
Our cash flows from operating, investing and financing from continuing operations for the nine months ended June 24, 2016 and June 26, 2015 are summarized below:
 
For the Nine Months Ended
($ in millions)
June 24,
2016
 
June 26,
2015
Net cash provided by operating activities
$
504

 
$
511

Net cash used in investing activities
(511
)
 
(752
)
Net cash used in financing activities
(1,041
)
 
(102
)
Cash flow from operating activities
Cash flow from operating activities can fluctuate significantly from period to period as working capital needs and the timing of payments for items such as restructuring activities, pension funding, income taxes, merger costs and other items impact reported cash flow.
The net change in working capital decreased operating cash flow by $479 million in the nine months ended June 24, 2016. The significant changes in working capital included a $149 million decrease in accrued and other liabilities, a $138 million decrease in tax sharing agreement, net, a $69 million increase in contracts in process, a $65 million increase in accounts receivable, and a $55 million increase in inventories.
The net change in working capital decreased operating cash flow by $372 million in the nine months ended June 26, 2015. The significant changes in working capital included a $104 million increase in accounts receivable, a $78 million decrease in accounts payable, a $72 million increase in inventories, a $55 million increase in prepaid expense and other current assets, and a $34 million decrease in accrued and other liabilities.

62

During the nine months ended June 24, 2016 and June 26, 2015, we paid approximately $67 million and $78 million, respectively, in cash related to restructuring activities. During the nine months ended June 24, 2016 and June 26, 2015, we paid approximately $43 million and $41 million, respectively, in cash related to repositioning activities.
During the nine months ended June 24, 2016 and June 26, 2015, we paid merger related expenses of $20 million and nil, respectively, related to the proposed merger with Johnson Controls.
During the nine months ended June 24, 2016 and June 26, 2015, we made payments of $39 million and nil, respectively, to satisfy a pension obligation.
During the nine months ended June 24, 2016 and June 26, 2015, we made required contributions of $2 million and $9 million, respectively, to our U.S. pension plans and $16 million and $13 million, respectively, to our non-U.S. pension plans. During the nine months ended June 24, 2016, we made voluntary contributions to our non-U.S. pension plan of $4 million. We anticipate that we will contribute $3 million to our U.S. plans and $25 million to our non-U.S. plans during fiscal 2016.
Income taxes paid, net of refunds, related to continuing operations were $51 million and $84 million during the nine months ended June 24, 2016 and June 26, 2015, respectively.
Net interest paid related to continuing operations was $49 million and $52 million for the nine months ended June 24, 2016 and June 26, 2015, respectively.
Cash flow from investing activities
Cash flows related to investing activities consist primarily of cash used for capital expenditures and acquisitions, proceeds derived from divestitures of businesses and assets and the purchase and sales and maturities of investments.
We made capital expenditures of $209 million and $183 million for the nine months ended June 24, 2016 and June 26, 2015, respectively.
During the nine months ended June 24, 2016, total consideration for acquisitions was $320 million, which was comprised of $364 million of cash paid, including $5 million to settle pre-existing matters and $6 million for pre-paid agency commissions, net of cash acquired of $33 million, which primarily related to our additional investment in the UAE joint venture in our ROW Integrated Solutions & Services segment and the acquisition of ShopperTrak in our NA Integrated Solutions & Services and ROW Integrated Solutions & Services segments. During the nine months ended June 26, 2015, we paid cash for acquisitions totaling $525 million, net of $26 million cash acquired, primarily related to acquisitions in in our ROW Integrated Solutions & Services and Global Products segments.
During the nine months ended June 24, 2016, we had net sales and maturities of investments, including restricted investments, of $18 million. During the nine months ended June 26, 2015, we had net purchases of investments, including restricted investments, of $7 million. Maturities of investments of $283 million included time deposits of $275 million, and we made purchases of $290 million of investments, primarily consisting of exchange traded equity and fixed income funds, which were classified as available-for-sale investments and were restricted as to use.
During the nine months ended June 24, 2016, our restricted cash decreased by $3 million. During the nine months ended June 26, 2015, our restricted cash increased by $27 million. This increase was primarily driven by $16 million of cash received from former management, which was required to be shared pursuant to the terms of a legacy class action lawsuit, an increase of $7 million pertaining to the asbestos-related qualified settlement fund, and $4 million of restricted cash related to an acquisition.
Cash flow from financing activities
Cash flows from financing activities relate primarily to proceeds received from incurring debt and issuing stock, and cash used to repay debt, repurchase stock and make dividend payments to shareholders.
During the nine months ended June 24, 2016, we repaid a total of approximately $1,134 million of current portion of long-term debt. On October 14, 2015, the Company redeemed its outstanding $242 million aggregate principal amount 7.0% notes due 2019 and $462 million aggregate principal amount 6.875% notes due 2021, which were classified as current as of September 25, 2015, for total cash of $876 million, which included a make-whole premium of $172 million. Also, on October 15, 2015, the Company repaid $258 million aggregate principal amount of 3.375% notes due 2015, which matured on such date.
During the nine months ended June 24, 2016 and June 26, 2015, we paid debt financing costs of $23 million and $5 million, respectively.

63

As of June 24, 2016 and September 25, 2015, TIFSA had commercial paper outstanding of $341 million and nil, respectively. The maximum aggregate amount of unsecured commercial paper notes available to be issued, on a private placement basis, under the commercial paper program is $1.5 billion as of June 24, 2016. As of June 24, 2016 and September 25, 2015, there were no amounts drawn under the Company's revolving credit facility. See Note 9 to the unaudited Consolidated Financial Statements.
During the nine months ended June 26, 2015, TIFSA issued €500 million aggregate principal amount of public notes due 2025, which resulted in proceeds of $567 million.
Pursuant to our share repurchase program, we may repurchase Tyco shares from time to time in open market purchases at prevailing market prices, in negotiated transactions off the market, or pursuant to an approved trading plan in accordance with applicable regulations. During the nine months ended June 24, 2016, we did not repurchase shares. During the nine months ended June 26, 2015, we repurchased approximately 10 million ordinary shares for approximately $417 million.
During the nine months ended June 24, 2016 and June 26, 2015, we paid cash dividends of approximately $261 million and $237 million, respectively.
During the nine months ended June 26, 2015, we paid contingent consideration of $23 million related to the transfer of a business license in China to Tyco. Contingent consideration paid during the nine months ended June 24, 2016 was not material.
Management believes that cash generated by or available to us should be sufficient to fund our capital and operational business needs for the foreseeable future.
Commitments and Contingencies
For a detailed discussion of contingencies related to tax and litigation matters, see Notes 6 and 11 to the unaudited Consolidated Financial Statements.
Backlog
We had a backlog of unfilled orders of $4,786 million and $4,562 million as of June 24, 2016 and September 25, 2015, respectively.
The Company's backlog includes recurring revenue-in-force and long-term deferred revenue for upfront fees from its NA and ROW Integrated Solutions & Services segments. Revenue-in-force represents 12 months' revenue associated with monitoring and maintenance services under contract in the security and fire business. Backlog by segment was as follows ($ in millions):
 
NA Integrated Solutions & Services
 
ROW Integrated Solutions
& Services
 
Global
Products
 
Total
As of September 25, 2015
 
 
 
 
 
 
 
Backlog
$
1,035

 
$
820

 
$
195

 
$
2,050

Recurring revenue in force
1,229

 
1,013

 
—

 
2,242

Deferred revenue
235

 
35

 
—

 
270

Total Backlog
$
2,499

 
$
1,868

 
$
195

 
$
4,562

As of June 24, 2016
 

 
 

 
 

 
 

Backlog
$
1,181

 
$
961

 
$
170

 
$
2,312

Recurring revenue in force
1,268

 
952

 
—

 
2,220

Deferred revenue
222

 
32

 
—

 
254

Total Backlog
$
2,671

 
$
1,945

 
$
170

 
$
4,786

Total backlog increased $224 million, or 4.9%, to $4,786 million as of June 24, 2016 compared to $4,562 million as of September 25, 2015. Acquisitions during fiscal 2016 contributed approximately $194 million, or 4.1%, to total backlog, primarily related to our UAE and ShopperTrak businesses. In addition, backlog also increased in our NA and ROW Integrated Solutions & Services segments. These increases were partially offset by divestitures, primarily related to our Australia fire protection business in our ROW Integrated Solutions & Services segment during fiscal 2016, which had an unfavorable impact of $101 million, or 2.1% to total backlog. In addition, changes in foreign currency had an unfavorable impact to total backlog of $61 million, or 1.3%, primarily in our ROW Integrated Solutions & Services segment.

64

Guarantees
The Company and certain of its subsidiaries have guaranteed the performance of third-parties and provided financial guarantees for uncompleted work and financial commitments. The terms of these guarantees vary with end dates ranging from the current fiscal year through the completion of such transactions. The guarantees would typically be triggered in the event of nonperformance and we believe that performance under the guarantees, if required, would not have a material effect on our 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 the Tax Sharing Agreements. The guarantees primarily relate to certain contingent tax liabilities included in the Tax Sharing Agreements. At the time of the 2007 and 2012 Separations, we recorded liabilities necessary to recognize the fair value of such guarantees and indemnifications. See Note 6 to the unaudited Consolidated Financial Statements. In addition, prior to the 2007 and 2012 Separations we provided support in the form of financial and/or performance guarantees to various Covidien, TE Connectivity, ADT and Tyco Flow Control operating entities. To the extent these guarantees were not assigned in connection with the 2007 and 2012 Separations, we remained as the guarantor, but were typically indemnified by the former subsidiary. See Note 18 to the unaudited Consolidated Financial Statements.
In disposing of assets or businesses, we often provide 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 and other liabilities related to periods prior to disposition. We have no reason to believe that these uncertainties would have a material adverse effect on our financial position, results of operations or cash flows. We have recorded liabilities for known indemnifications included as part of environmental liabilities. See Note 11 to the unaudited Consolidated Financial Statements.
In the normal course of business, we are liable for contract completion and product performance. We record estimated product warranty costs at the time of sale. In the opinion of management, such obligations will not significantly affect our financial position, results of operations or cash flows.
For a detailed discussion of guarantees and indemnifications, see Note 18 to the unaudited Consolidated Financial Statements.
Non-U.S. GAAP Measure
In an effort to provide investors with additional information regarding our results as determined by U.S. GAAP, we also disclose the non-U.S. GAAP measure of organic revenue growth (decline). We believe that this measure is useful to investors in evaluating our operating performance for the periods presented. When read in conjunction with our U.S. GAAP revenue, it enables investors to better evaluate our operations without giving effect to fluctuations in foreign exchange rates and acquisition and divestiture activity, either of which may be significant from period to period. In addition, organic revenue growth (decline) is a factor we use in internal evaluations of the overall performance of our business. This measure is not a financial measure under U.S. GAAP and should not be considered as a substitute for revenue as determined in accordance with U.S. GAAP, and it may not be comparable to similarly titled measures reported by other companies. Organic revenue growth (decline) presented herein is defined as revenue growth (decline) excluding the effects of foreign currency fluctuations, acquisitions and divestitures and other changes that may not reflect underlying results and trends. Our organic growth (decline) calculations incorporate an estimate of prior year reported net revenue associated with acquired entities that have been fully integrated within the first year, and exclude prior year net revenue associated with entities that do not meet the criteria for discontinued operations which have been divested within the past year ("adjusted number"). We calculate the rate of organic growth (decline) based on the adjusted number to better reflect the rate of growth (decline) of the combined business, in the case of acquisitions, or the remaining business, in the case of dispositions. We base the rate of organic growth (decline) for acquired businesses that are not fully integrated within the first year upon unadjusted historical net revenue. Foreign currency fluctuations are calculated by subtracting (i) the U.S. dollar equivalent of local currencies for the current period using monthly weighted average exchange rates for the prior period from (ii) the U.S. dollar equivalent of local currencies for the current period using monthly weighted average exchange rates for the current period. We may use organic revenue growth (decline) as a component of our compensation programs.

65

The table below details the components of organic revenue growth (decline) and reconciles the non-U.S. GAAP measure to U.S. GAAP net revenue growth (decline).
Quarter Ended June 24, 2016
 
Net Revenue for the Quarter Ended
June 26, 2015
 
Base Year
Adjustments
Divestitures / Other
 
Adjusted
Fiscal 2015
Base Revenue
 
Foreign
Currency
 
Acquisitions
 
Organic
Revenue
 
Organic
Growth (Decline)
Percentage(1)
 
Net Revenue for the Quarter Ended
June 24, 2016
 
($ in millions)
NA Integrated Solutions & Services
$
972

 
$
—

 
$
972

 
$
(5
)
 
$
13

 
$
24

 
2.5
 %
 
$
1,004

ROW Integrated Solutions & Services
842

 
(72
)
 
770

 
(48
)
 
57

 
15

 
1.9
 %
 
794

Global Products
675

 
(12
)
 
663

 
(10
)
 
—

 
(2
)
 
(0.3
)%
 
651

Total Net Revenue
$
2,489

 
$
(84
)
 
$
2,405

 
$
(63
)
 
$
70

 
$
37

 
1.5
 %
 
$
2,449

(1) 
Organic revenue growth (decline) percentage based on adjusted fiscal 2015 base revenue.


Nine Months Ended June 24, 2016

 
Net Revenue for the Nine Months Ended
June 26, 2015
 
Base Year
Adjustments
Divestitures / Other
 
Adjusted
Fiscal 2015
Base Revenue
 
Foreign
Currency
 
Acquisitions
 
Organic
Revenue
 
Organic
Growth (Decline)
Percentage(1)
 
Net Revenue for the Nine Months Ended
June 24, 2016
 
($ in millions)
NA Integrated Solutions & Services
$
2,867

 
$
—

 
$
2,867

 
$
(31
)
 
$
25

 
$
43

 
1.5
 %
 
$
2,904

ROW Integrated Solutions & Services
2,605

 
(156
)
 
2,449

 
(222
)
 
150

 
(3
)
 
(0.1
)%
 
2,374

Global Products
1,925

 
(16
)
 
1,909

 
(63
)
 
56

 
(24
)
 
(1.3
)%
 
1,878

Total Net Revenue
$
7,397

 
$
(172
)
 
$
7,225

 
$
(316
)
 
$
231

 
$
16

 
0.2
 %
 
$
7,156


(1) 
Organic revenue growth (decline) percentage based on adjusted fiscal 2015 base revenue.
Forward-Looking Information
Certain statements in this report are "forward-looking statements" within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. All forward-looking statements involve risks and uncertainties. In many cases forward-looking statements are identified by words, and variations of words, such as “anticipate,” “estimate,” “believe,” “commit,” “continue,” “could,” “intend,” “may,” “plan,” “potential,” “predict,” “positioned,” “should,” “will,” “expect,” “objective,” “projection,” “forecast,” “goal,” “guidance,” “outlook,” “effort,” “target” and other similar words. However, the absence of these words does not mean that the statements are not forward-looking. Any forward-looking statement contained herein, in press releases, written statements or other documents filed with the SEC, or in Tyco's communications and discussions with investors and analysts in the normal course of business through meetings, webcasts, phone calls and conference calls, regarding expectations with respect to future events, including sales, earnings, cash flows, operating and tax efficiencies, product expansion, backlog, the consummation and benefits of acquisitions and divestitures, as well as financings and repurchases of debt or equity securities, are subject to known and unknown risks, uncertainties and contingencies. Many of these risks, uncertainties and contingencies are beyond our control, and may cause actual results, performance or achievements to differ materially from anticipated results, performances or achievements. Factors that might affect such forward-looking statements include, among other things:

•
overall economic and business conditions, and overall demand for Tyco's goods and services;
•
economic and competitive conditions in the industries, end markets and regions served by our businesses;
•
changes in legal and tax requirements (including tax rate changes, new tax laws or treaties and revised tax law interpretations);
•
our, and our employees' and agents' ability to comply with complex and continually changing laws and regulations that govern our international operations, including the U.S. Foreign Corrupt Practices Act, similar anti-bribery laws in

66

other jurisdictions, a variety of export control, customs, privacy, currency exchange control and transfer pricing regulations, and our corporate policies governing these matters;
•
the outcome of litigation, arbitrations and governmental proceedings;
•
effect of income tax audits, litigation, settlements and appeals;
•
our ability to repay or refinance our outstanding indebtedness as it matures;
•
our ability to operate within the limitations imposed by financing arrangements and to maintain our credit ratings;
•
interest rate fluctuations and other changes in borrowing costs, or other consequences of volatility in the capital or credit markets;
•
other capital market conditions, including availability of funding sources;
•
currency exchange rate fluctuations;
•
availability of and fluctuations in the prices of key raw materials;
•
changes affecting customers or suppliers;
•
economic and political conditions in international markets, including governmental changes and restrictions on the ability to transfer capital across borders;
•
our ability to achieve anticipated cost savings;
•
our ability to predict end-user demand for new or enhanced product or service offerings;
•
our ability to execute our portfolio refinement and acquisition strategies, including successfully integrating acquired operations;
•
potential impairment of our goodwill, intangibles and/or our long-lived assets;
•
other risks associated with the 2012 Separation, for example the risk that we may be liable for certain contingent liabilities of the spun-off entities if they were to become insolvent;
•
risks associated with our jurisdiction of incorporation, including the possibility of reduced flexibility with respect to certain aspects of capital management and corporate governance, increased or different regulatory burdens, and the possibility that we may not realize anticipated tax benefits;
•
the possible effects on Tyco of future legislation in the United States that may limit or eliminate potential U.S. tax benefits resulting from Tyco International's incorporation outside of the United States or deny U.S. government contracts to Tyco based upon its jurisdiction of incorporation;
•
natural events such as severe weather, fires, floods and earthquakes;
•
acts of terrorism, cyber-attacks or our inability to maintain adequate security related information networks and data;
•
our ability to complete the proposed combination with Johnson Controls on anticipated terms and timing, including obtaining shareholder and regulatory approvals, anticipated tax treatment, unforeseen liabilities, future capital expenditures, revenues, expenses, earnings, synergies, economic performance, indebtedness, financial condition, losses, future prospects, business and management strategies for the management, expansion and growth of the new combined company’s operations; and
•
assuming the proposed merger with Johnson Controls is completed, the ability of us and Johnson Controls to integrate our businesses successfully and to achieve anticipated synergies, changes in tax laws or interpretations, access to available financing, potential litigation relating to the proposed transaction, and the risk that disruptions from the proposed transaction will harm our business.
Item 3.    Quantitative and Qualitative Disclosures About Market Risk
The Company's exposure to market risk from changes in interest rates, foreign currency exchange rates and commodity prices has not changed materially from our exposure discussed in the 2015 Form 10-K. In order to manage the volatility relating to our more significant market risks, we may enter into forward foreign currency exchange contracts, interest rate swaps and commodity swaps. As of and during the nine months ended June 24, 2016, the Company did not hold or enter into any commodity derivative instruments or interest rate swaps.
We utilize established risk management policies and procedures in executing derivative financial instrument transactions. We do not execute transactions or hold derivative financial instruments for trading or speculative purposes. Derivative financial instruments related to non-functional currency cash flows are used with the goal of mitigating a significant portion of these exposures when it is cost effective to do so. Counterparties to derivative financial instruments are limited to financial institutions with strong investment grade long-term credit ratings.

67

Item 4.    Controls and Procedures
The Company, under the supervision and with the participation of its management, including its Chief Executive Officer and Chief Financial Officer, carried out an evaluation of the effectiveness of the design and operation of its disclosure controls and procedures (as such term is defined under Rule 13a-15 of the Securities and Exchange Act (the Exchange Act)) as of the end of the period covered by this report. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of June 24, 2016, the Company's disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed in the reports that the Company files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the applicable rules and forms, and that it is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
There has been no change in our internal control over financial reporting during the quarter ended June 24, 2016 that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting.
PART II. OTHER INFORMATION
Item 1.    Legal Proceedings
Environmental Matters
Tyco is involved in various stages of investigation and cleanup related to environmental remediation matters at a number of sites. The ultimate cost of site cleanup is difficult to predict given the uncertainties regarding the extent of the required cleanup, the interpretation of applicable laws and regulations and alternative cleanup methods. As of June 24, 2016, Tyco concluded that it was probable that it would incur remedial costs in the range of approximately $20 million to $69 million. As of June 24, 2016, Tyco concluded that the best estimate within this range is approximately $31 million, of which $11 million is included in Accrued and other current liabilities and $20 million is included in Other liabilities within the Company's Consolidated Balance Sheet.
As previously disclosed, the majority of the liabilities described above relate to ongoing remediation efforts at a facility in the Company's Global Products segment located in Marinette, Wisconsin, which the Company acquired in 1990 in connection with its acquisition of, among other things, the Ansul product line. As of June 24, 2016, the Company concluded that its remaining remediation and monitoring costs related to the Marinette facility were in the range of approximately $12 million to $44 million. The Company's best estimate within that range is approximately $21 million, of which $9 million is included in Accrued and other current liabilities and $12 million is included in Other liabilities within the Company's Consolidated Balance Sheet. Although the Company has recorded its best estimate of the costs that it will incur to remediate and monitor contamination at the Marinette facility, it is possible that technological, regulatory or enforcement developments, the results of environmental studies or other factors could change the Company's expectations with respect to future charges and cash outlays, and such changes could be material to the Company's future results of operations, financial condition or cash flows.
Asbestos Matters
The Company and certain of its subsidiaries, including Grinnell LLC (“Grinnell”), along with numerous other third parties, are named as defendants in personal injury lawsuits based on alleged exposure to asbestos containing materials. Substantially all cases pending against affiliates of the Company have been filed against Grinnell, and have typically involved product liability claims based primarily on allegations of manufacture, sale or distribution of industrial products that either contained asbestos or were used with asbestos containing components.
During the third quarter of fiscal 2014, the Company, through Grinnell, resolved disputes with certain of its historical insurers and agreed that certain insurance proceeds would be used to establish and fund a qualified settlement fund (“QSF”), within the meaning of the Internal Revenue Code, which would be used for the resolution primarily of Grinnell asbestos liabilities. It is intended that the QSF will receive future insurance payments and proceeds from third party insurers and, in addition, will fund and manage liabilities for certain historical operations of the Company, primarily related to Grinnell. On January 9, 2015, the Company completed a series of restructuring transactions related to the establishment and funding of a dedicated structure pursuant to which a subsidiary of the Company acquired the assets of Grinnell and transferred cash and

68

other assets totaling approximately $278 million (not including $22 million received by the QSF during the quarter ended December 26, 2014 from historic third-party insurers in settlement of coverage disputes) to the structure. As part of the restructuring, subsidiaries in the structure assumed certain liabilities related to historic Grinnell, Scott and Figgie operations, including all historical Grinnell asbestos liabilities, and such subsidiaries purchased additional insurance by, through or from a wholly-owned subsidiary in the structure in order to supplement and enhance existing insurance assets.
The Company consolidates the qualified settlement fund and related entities that were established for the purpose of managing and resolving the liabilities described above. Although the entities in the dedicated structure serve the specific purpose of managing certain liabilities, each entity in the structure is a wholly-owned indirect subsidiary of the Company, and therefore is required to be consolidated under GAAP.
As of June 24, 2016, the Company has determined that there were approximately 3,000 claims pending against its subsidiaries, primarily Grinnell. This amount reflects the Company's current estimate of the number of viable claims made against Grinnell and includes adjustments for claims that are not actively being prosecuted, identify incorrect defendants, are duplicative of other actions or for which the Company is indemnified by third parties.
As of June 24, 2016, the Company's estimated asbestos related net liability recorded within the Company's Consolidated Balance Sheet is $18 million. The net liability within the Consolidated Balance Sheet is comprised of a liability for pending and future claims and related defense costs of $492 million, of which $22 million is recorded in Accrued and other current liabilities, and $470 million is recorded in Other liabilities. The Company also maintains separate cash, investment and other assets within the Consolidated Balance Sheet of $474 million, of which $31 million is recorded in Prepaid expenses and other current assets, and $443 million is recorded in Other assets. Assets include $11 million of cash and $257 million of investments, which have all been designated as restricted. As of September 25, 2015, the Company's estimated net liability recorded within the Company's Consolidated Balance Sheet was $28 million. The net liability was comprised of a liability for pending and future claims and related defense costs of $515 million, of which $23 million was recorded in Accrued and other current liabilities, and $492 million was recorded in Other liabilities. The Company also maintained separate cash, investment and other assets within the Consolidated Balance Sheet of $487 million, of which $38 million was recorded in Prepaid expenses and other current assets, and $449 million was recorded in Other assets. Assets included $11 million of cash and $263 million of investments, which were all designated as restricted.
The Company periodically assesses the sufficiency of its estimated liability for pending and future asbestos claims and defense costs. On a periodic basis, the Company, through the dedicated structure referred to above, evaluates actual experience regarding asbestos claims filed, settled and dismissed, amounts paid in settlements, and the recoverability of its insurance assets. If and when data from actual experience demonstrate a significant unfavorable discernible trend, the Company performs a valuation of its asbestos related liabilities and corresponding insurance assets including a comprehensive review of the underlying assumptions. In addition, the Company evaluates its ability to reasonably estimate claim activity beyond its current look-forward period (through 2056) in order to assess whether such period continues to be appropriate. In addition to claims and litigation experience, the Company considers additional qualitative and quantitative factors such as changes in legislation, the legal environment, the Company’s strategy in managing claims and obtaining insurance, including its defense strategy, and health related trends in the overall population of individuals potentially exposed to asbestos. The Company evaluates all of these factors and determines whether a change in the estimate of its liability for pending and future claims and defense costs or insurance assets is warranted.
The amounts recorded by the Company for asbestos-related liabilities and insurance-related assets are based on the Company's strategies for resolving its asbestos claims, currently available information, and a number of estimates and assumptions. Key variables and assumptions include the number and type of new claims that are filed each year, the average cost of resolution of claims, the identity of defendants, the resolution of coverage issues with insurance carriers, amount of insurance, and the solvency risk with respect to the Company's insurance carriers. Many of these factors are closely linked, such that a change in one variable or assumption will impact one or more of the others, and no single variable or assumption predominately influences the determination of the Company's asbestos-related liabilities and insurance-related assets. Furthermore, predictions with respect to these variables are subject to greater uncertainty in the later portion of the projection period. Other factors that may affect the Company's liability and cash payments for asbestos-related matters include uncertainties surrounding the litigation process from jurisdiction to jurisdiction and from case to case, reforms of state or federal tort legislation and the applicability of insurance policies among subsidiaries. As a result, actual liabilities or insurance recoveries could be significantly higher or lower than those recorded if assumptions used in the Company's calculations vary significantly from actual results.

69

Tax Matters
Tyco and its subsidiaries' income tax returns are examined periodically by various tax authorities. In connection with these examinations, tax authorities, including the IRS, have raised issues and proposed tax adjustments, in particular with respect to years preceding the 2007 Separation. The issues and proposed adjustments related to such years are generally subject to the sharing provisions of the 2007 Tax Sharing Agreement and Tyco's liabilities under the 2007 Tax Sharing Agreement are further subject to the sharing provisions in the 2012 Tax Sharing Agreement. Tyco has previously disclosed that on June 20, 2013, it had received Notices of Deficiency from the IRS asserting that several of Tyco's former U.S. subsidiaries owed additional taxes of $883.3 million plus penalties of $154 million based on audits of the 1997 through 2000 tax years of Tyco and its subsidiaries as they existed at that time. In addition, Tyco received Final Partnership Administrative Adjustments for certain U.S. partnerships owned by former U.S. subsidiaries with respect to which an additional tax deficiency of approximately $30 million had been asserted. These amounts excluded interest and did not reflect the roll-forward impact on subsequent audit periods.
As previously reported, the Company, as Audit Managing Party under each Tax Sharing Agreement dated September 25, 2007 (among the Company, TE Connectivity Ltd. and Covidien plc (which on January 26, 2015 was acquired by and now operates as a subsidiary of Medtronic plc) and dated September 28, 2012 (among the Company, The ADT Corporation and Pentair Ltd. (along with TE Connectivity and Covidien, the "Parties")), entered into Stipulations of Settled Issues with the IRS intended to resolve all Federal tax disputes related to the intercompany debt issues for the Company’s 1997 - 2000 audit cycle before the U.S. Tax Court. The Stipulations of Settled Issues were contingent upon the IRS Appeals Division applying the same settlement terms to all intercompany debt issues on appeal for subsequent audit cycles (2001 - 2007). On May 17, 2016 the IRS Office of Appeals issued fully-executed Forms 870-AD that effectively settled the matters on appeal on the same terms as those set forth in the Stipulations of Settled Issues, and on May 31, 2016, the U.S. Tax Court entered decisions consistent with the Stipulations of Settled Issues. As a result, all aspects of this controversy that were before the U.S. Tax Court and Appeals Division of the IRS have been finally resolved for audit cycles 1997 - 2007. The Company paid $120 million to TE Connectivity Ltd. and $2 million to Covidien during the second quarter of fiscal 2016 representing its share of the total amount payable to the IRS in connection with this matter.
Additionally, during the third quarter of fiscal 2016, the Company also paid $12 million to Covidien and $4 million to TE Connectivity with respect to other matters sharable pursuant to the 2007 Tax Sharing Agreement.
As a result of the final settlement, the Company assessed its remaining obligations under its tax sharing agreements. Based on the assessment performed, the Company reversed a portion of its shared tax obligation liabilities related to the 2007 and 2012 Tax Sharing Agreements, and recognized a gain of $54 million in Other income (expense), net within the Consolidated Statements of Operations for both the quarter and nine months ended June 24, 2016. The Company believes the remaining liabilities that it has recorded are sufficient to cover its future obligations under the Tax Sharing Agreements.
Other Matters
On March 1, 2016, a putative class action lawsuit, Wandel v. Tyco International plc, et al., Docket No. C-000010-16, was filed in the Superior Court of New Jersey naming Tyco, the individual members of its board of directors, Johnson Controls and Merger Sub as defendants. The complaint alleges that Tyco’s directors breached their fiduciary duties and exercised their powers as directors in a manner oppressive to the public shareholders of Tyco in violation of Irish law by, among other things, failing to take steps to maximize shareholder value and failing to protect against purported conflicts of interest. The complaint further alleges that Tyco, Johnson Controls and Merger Sub aided and abetted Tyco’s directors in the breach of their fiduciary duties. The complaint seeks, among other things, to enjoin the merger. We believe that the claims asserted by the complaint are not valid.

On May 20, 2016, a putative class action lawsuit, Laufer v. Johnson Controls, Inc., et al., Docket No. 2016CV003859, was filed in the Circuit Court of Wisconsin, Milwaukee County, naming Johnson Controls, the individual members of its board of directors, Tyco and Merger Sub as defendants. The complaint alleges that Johnson Controls' directors breached their fiduciary duties by, among other things, failing to take steps to maximize shareholder value, seeking to benefit themselves improperly and failing to disclose material information in this joint proxy statement/prospectus. The complaint further alleges that Tyco aided and abetted Johnson Controls' directors in the breach of their fiduciary duties. The complaint seeks, among other things, to enjoin the merger. The Company believes that the claims asserted by the complaint are not valid.
 
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

70

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.
Item 1A.    Risk Factors
Tyco's significant business risks are described in Part I, Item 1A in our Annual Report on Form 10-K for the fiscal year 2015, to which reference is made herein. There have been no material changes to the risk factors disclosed in such Annual Report other than those set forth in our Form 10-Q for the second quarter of fiscal 2016, filed with the SEC on April 29, 2016.
Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds
Issuer Purchases of Equity Securities
During the quarter ended June 24, 2016, no ordinary shares were repurchased on the New York Stock Exchange. In addition, acquisition of shares by the Company from certain employees in order to satisfy employee tax withholding requirements in connection with the vesting of restricted shares were not material during the quarter ended June 24, 2016.
Item 3.    Defaults Upon Senior Securities
None.
Item 4.    Mine Safety Disclosures
None.
Item 5.    Other Information
None.
Item 6.   Exhibits
Exhibit
Number
 
Exhibit
31.1

 
Certification by the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Filed herewith).
31.2

 
Certification by the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Filed herewith).
32.1

 
Certification by the Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Filed herewith).
101

 
Financial statements from the quarterly report on Form 10-Q of Tyco International plc for the quarter and nine months ended June 24, 2016 formatted in XBRL: (i) the Consolidated Statements of Operations, (ii) the Consolidated Statements of Comprehensive Income, (iii) the Consolidated Balance Sheets, (iv) the Consolidated Statements of Cash Flows, (v) the Consolidated Statements of Shareholders' Equity, and (vi) the Notes to Unaudited Consolidated Financial Statements.

71

SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
TYCO INTERNATIONAL PLC
 
By:
/s/ ROBERT E. OLSON
 
 
Robert E. Olson
 Executive Vice President, Chief Financial Officer and Chief Accounting Officer
(Principal Financial Officer)

Date: July 29, 2016

72

Johnson Controls International plc Reports